Across the globe, financial regulators are looking to institute policies designed to protect the best interests of investors. While some are certainly more vigorous in their reform efforts than others, the underlying message is the same – no one wants a repeat market disruption of similar magnitude to the 2008 financial crisis. Controls were immediately focused on crisis prevention specific to the liquidity failures that occurred, but over time the radar and scope of scrutiny has naturally broadened and progressed to review the operational inadequacies that allowed for such failure. The year 2013 saw substantial activity geared toward tightening controls surrounding the prevailing outsourced operations model in particular.
Regulation, chartered with ensuring the appropriate oversight framework is in place, has become a common, international theme throughout the asset management industry. The list is long, but a handful of examples where financial regulators have issued mandates include:
- Canada’s Securities Administrators (CSA) Memorandum of Understanding Effective Dec 3, 2013
- Singapore’s Monetary Authority (MAS) June 2013 issuance of their Technology Risk Management Guidelines
- The UK’s FCA recent publication of a follow on thematic review in November 2013
- Australia’s Prudential Regulation Authority (APRA) Superannuation Prudential Standard SPS 231 came into force in July 2013
The growth rate in the outsourcing space in recent years offers explanation where, in the US alone, more than 90% of fund accounting, transfer agency & custody operations are already outsourced and middle office functions are trending in the same direction with an expected growth rate of 19%1 .