What Is Financial Services Outsourcing?
Many financial organizations today are increasingly taking part in outsourcing significant parts of their regulated and unregulated activities. This financial services outsourcing with third party vendors have a potential to transfer risk, management and compliance. With all of this financial services outsourcing, how do we know if all of the regulations are being held correctly with all this information being outsourced to offshore vendors. Most companies use financial services outsourcing in order to cut costs and to get a bigger hand in the market strategically. But there are many reports and regulatory surveys that are popping out of the woodwork that states the financial services outsourcing firms are conducting many of the regulated and unregulated activities of the company on an offshore basis. These activities impact the information technology such as applications, development, programming, and coding. It also impacts the specific operations such as finance and accounting, back office activities, processing, and administration.
All of these processes including many others are usually controlled by an in-house risk management framework but as companies implement financial services outsourcing, this risk management framework becomes a lot more complex due to the fact that these offshore vendors may not be regulated because of their geography. Because of this complexity with regulation involved with financial services outsourcing, a joint forum was created by the Basel Committee on Banking Supervision, The International Organization of Securities Commissions, and the International Association of Insurance Supervisors. This joint forum has devised principles for the financial services outsourcing to make sure that the service provider is a regulated entity. The joint forum is mainly used to take the complexity of the risk management system of a company and entitles the joint forum to manage the risks and monitor the compliance with all regulatory requirements. The joint forum has been concerned that financial services outsourcing has had the potential of over reliance on the out-sourced activities and that companies have been too involved in looking at the dollar signs instead of taking into consideration the risks that they are creating with their services and their customers. The joint forum has taken steps to mitigate these risks caused by financial services outsourcing by creating principles that companies must abide by. They are that the company must draw up a clear and concise document on the outsourcing policies, they must establish an effective risk management program, they must have contingency planning, they must negotiate appropriate outsourcing contracts, and they must analyze the financial and infrastructure resources of the service provider. With the rapid growth of technology and the increasing reliance on the financial services outsourcing, the joint forum believe that unless appropriate constraints of market and regulatory influences are not put into place, then there will be a lot of companies that will have systematic problems. They are there in order to prevent this from happening. |