Central Bank concerned by level of outsourcing in funds sector

Bank review suggest up to 61 per cent of fund administration activity here is outsourced

 

The Central Bank has raised concern about the growing number of Irish fund administrators outsourcing activities to global service providers.

Based on a review of several big firms in the sector, the bank said up to 61 per cent of fund administration activity here was outsourced to other jurisdictions.

It found adminstrators outsourced business to an average of 10 locations, albeit primarily to other group entities.

While shifting business overseas was aimed at increasing efficiencies and reducing costs, it was associated with many potential challenges, the Central Bank noted.

“While many potential risks arising from outsourcing can be effectively managed through robust oversight and governance arrangements being adopted, concerns still exist for the Central Bank regarding the standards/arrangements that are in place to adequately oversee all outsourced activities,” it said.

Ireland is a funds industry hub with up to $3 trillion of funds domiciled here.

In its review, however, the bank noted that not all firms kept comprehensive outsourcing records.

Equally, it said not all overseas providers were regulated or if regulated not in the same way as administrators here.

The Central Bank also said not all firms had set “tolerance levels” in respect of the level of outsourcing permitted.

“This review found that outsourcing in larger Fund Administrators is extensive and continues to grow,” Michael Hodson, director of the Central Bank’s Asset Management Supervision said.

“ Certain good governance arrangements, where firms were adequately managing risks in relation to outsourcing were observed, but some weaknesses in the oversight of service providers remain,” he said.

“Fund administrators should review the examples of good practice outlined in the Central Bank’s letter(review). The information provided aims to support the development of consistent industry practices to assist in ensuring compliance by firms with the outsourcing requirements,” he said.