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New CCO May Drive Third Party Exams
From: Operation Management
May 16, 2004
The requirement that firms designate a chief compliance officer may drive an examination of third-party service providers and may even prompt many complexes to bring shareholder servicing functions in house. According to a white paper to be released this week from Envision Financial Systems, there has been a tacit understanding in the industry that outsourcing certain services also meant outsourcing the risk. "The truth is far more grim," write the report's authors. According to the report, CCOs and other fund officials need to examine the provisions governing the standard of care and indemnification, particularly in the new regulatory environment. The report says securing good contract terms is highly dependent on the size of the firm. "An investment company's recourse is only as good as their contract," write the authors. The authors add that insourcing shareholder services allows firms to maintain control of potential exposure. Envision provides in-house systems for transfer agency.
The white paper also asserts that future compliance will lead to greater costs for firms that outsource transfer agency. New requirements that call for more frequent and detailed reporting will not be free when provided by third parties using mainframe systems, says Envision. "With newer technology offering lower cost and data flexibility benefits over mainframes while allowing scalability for future growth, the added control and peace of mind through keeping shareholder services internal is a powerful motivator for fund companies looking to meet regulatory compliance," write the authors. With the Securities and Exchange Commission looking into transfer agency fees, the report also details the cost of outsourcing vs. inhouse processing. According to Envision, inhouse transfer agencies can save a firm 40% in processing costs.
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This article is from Operations Management at www.operationsmanagment.com.
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