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MiFID – Outsourcing continues to be an issue

16 August 2007
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A recent survey by City law firm Field Fisher Waterhouse has indicated that a significant percentage of outsourcing agreements signed by MiFID-impacted firms still fail to comply with the basic requirements of the directive. Whereas other regulations such as Basel II and Sarbox impact outsourcing by extrapolation of their rulings, MiFID is different in that is specifically refers to outsourcing and makes demands on outsourcing contracts, requires actions of supervisors and differentiates according to where the outsourcing service is located.

The overall impact will be to require substantial re-writing of existing outsourcing contracts and potentially brings the outsourcing vendors into the supervision of national regulators. This was recognised by the UK’s Financial Services Authority who released specific guidance in May, see Chase Cooper News of 17th May.

The FFW survey shows that many financial services organisations’ outsourcing agreements still fail to comply with MiFID. The main issues are:

  • 40% do not have an up-to-date exit management plan in place with their service provider
  • 36% do not have their regulatory team review its contracts
  • A third do not have a service level agreement in place with every service provider
  • 32% do not regularly test service provider’s disaster recovery
  • Where a service provider fails to meet regulatory standards, 31% do not have step-in rights or the right to terminate their agreement
  • More than 30% of agreements do not require the service provider to regularly test back up facilities.

Field Fisher Waterhouse technology partner Simon Briskman said: “Many companies have a long way to go between now and 1 November. In order to achieve the deadline, firms need to engage their suppliers in negotiations now. Many companies have assumed that the outsourcing rules under MiFID are no more than an extension of the current rules and reflect good practice.”


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