The failure by the Financial Services Authority (FSA) to bring outsourcing providers into the regulatory framework could hinder consumer protection and place financial services firms at risk.
The claim has been made by Huntswood Outsourcing Solutions, (HOS) which questioned 100 directors and senior managers in the financial services industry. It found the majority have serious concerns that consumer protection is put at risk when businesses outsource regulated processes. Senior management at outsourcing firms are not liable for regulatory breaches in the same way as originating financial services providers. There are fears that because outsourcers often act for more than one company there is a concentration of risk outside of regulatory control.
The survey found that 73% of those questioned felt direct regulation of outsourcing service providers would reduce the risk and complexity of outsourcing regulatory functions.
David Brownlow, chief executive of HOS, said: “Outsourcing is swiftly becoming a necessity for financial institutions to remain profitable in the face of depressed stock markets, tightening regulation and intense competition. By regulating outsourced service providers directly, the FSA could help to ensure that outsourcing is as safe and efficient as possible, and so protect both the consumer and the commercial interests of financial institutions.”
HOS has just received an £11m investment from venture capitalist company 3i which will be used to aid expansion of its business dealing with endowment mis-selling complaints.