The Financial Conduct Authority (FCA) has published its Sector Views which provides its annual analysis of the changing financial services landscape and impacts on consumers and markets. In the section of the report for the investment management sector, the FCA identifies five sector wide issues which have the potential to threaten stability and resilience. All of those factors with one exception relate to risks posed by technology:
- failure or disruption at one or more of the small number of custody banks and investment administration service providers could result in significant harmful side effects;
- significant harmful side effects could result from failure at one or more of the small number of firms relied on for outsourced technology services;
- technological failure or disruption, including from cyber-crime could threaten market confidence and participation; and
- inappropriate technology-led asset management decisions could also result in harmful side effects.
To the extent that firms have not already done so, now would be a good time to assess what impact the crystallisation of one of these risks could have on your business and how comfortable you are that your service providers do not pose unacceptable levels of risk. In particular, firms should consider how their service providers are monitored on an ongoing basis. Of course, these are not new messages from the FCA. Firms have been under an obligation to keep outsourcing service providers under review for a long time. However, there is an increased regulatory focus on operational resilience and regulatory expectations are ever higher in this area. Have you asked yourself whether you (and your board) are doing enough?