News 23/09/24

AFM makes recommendations for monitoring outsourcing in the asset management sector

Investment firms and managers are increasingly outsourcing their activities. Outsourcing can help enhance the efficiency and quality of operations, but also carries risks. The Dutch Authority for the Financial Markets (AFM) has conducted an assessment into the monitoring of outsourcing arrangements in the asset management sector and now shares its findings in a report. The report also provides recommendations for managing outsourcing risks on an ongoing basis.

Ongoing control of outsourcing risks insufficient

We find that while companies do monitor their outsourcing activities, they often have a tendency to rely on assumptions that lead to insufficient control of risks. For instance, companies sometimes lack a consistent process to determine what does and does not qualify as outsourcing. When setting up an outsourcing arrangement, companies frequently give insufficient consideration to measures and agreements that would facilitate future monitoring, and a consistent and substantiated approach based on risks is sometimes lacking. In addition, there are specific situations to which we call attention, such as intra-group outsourcing arrangements and ICT outsourcing arrangements.

Recommendations for companies

Based on the findings of its assessment, we have issued 20 recommendations for companies. Among other things, we recommend drawing up written policies that clearly outline when an arrangement qualifies as outsourcing, keeping an integral overview of outsourcing arrangements and establishing a clear incident procedure.

We have drafted guidance on how to manage outsourcing risks and expects companies to take the recommendations in this report into account in the ongoing management of their outsourcing arrangements. Although the survey was conducted among firms in the asset management sector, the recommendations are more broadly relevant. The recommendations can also be used by other investment firms such as proprietary traders and trading venues to evaluate their processes around outsourcing.