FSA warns asset managers on outsourcing risks

The Financial Services Authority (FSA) is warning asset managers that outsource activities to external service providers to exercise "care and diligence" when entering into any arrangement, and to ensure they have a "robust" exit plan should something go wrong.

It has written a ‘Dear CEO' letter to express its concerns, pointing out that, based on its findings, it is "not confident" effective recovery and resolution plans are in place for the UK asset management sector should an outsource provider face financial distress or "severe operational disruption". Asset managers would not be able to perform important regulated activities - thereby causing detriment to customers - if this happens and they do not have a "clearly defined" exit strategy, the regulator said. "The FSA is assessing the risk to our objectives arising from asset management f...