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Outsourcing regulation challenges US firms
29 May 2014
40% of asset managers say their current operations are unprepared for future regulation of outsourcing oversight
Regulation and automation of outsourcing by asset management
firms is set to increase as the practice becomes
However, a new survey by Milestone Group shows that most
North American firms, including institutional asset managers,
wealth managers and pension advisors, were struggling to adapt
their business to expected requirements. Some 40% of
respondents felt their current operation was unprepared to meet
regulatory changes and any required increase in automation.
"The industry's sensitivity to market events, combined with
global pressures resulting from increased regulation in
developed markets, would suggest that the Securities and
Exchange Commission (SEC) will become less tolerant on this
subject and that change is inevitable," the report said.
As regulation increases, automation is required to combat
slower reaction times which would otherwise translate into
increased operational risk. While best practice in operational
oversight is still being debated, there is consensus that
automation of the oversight infrastructure is clearly
Larger firms tend to have more oversight of outsourcing than
smaller firms because the former have more resources. The
survey's finding support this by indicating a direct
correlation between the size of a firm and the level of
operational oversight currently being performed.
Over half (61%) of firms were already anticipating the
changes. They said they would not wait for the new regulations
to arrive before strengthening oversight of outsourcing.
All firms surveyed were in agreement that the outsourcing
market would continue to grow in the next three to five years.
They viewed protection of reputation and the interests of their
investors as their highest priority in regards to responding to
Recent market events, including several publicly reported US
net-asset-value (NAV) pricing errors and the UK market's
response to the Financial Conduct Authority (FCA) thematic
review, has increased scrutiny of operational oversight in the
global investment management industry.