What is the SFC's view in relation to outsourcing?
Outsourcing is an event in which the regulated financial services firm (the outsourcing entity), contracts with a service provider to perform any aspect of the outsourcing entity's regulated or unregulated functions that could otherwise be undertaken by the entity itself. The service provider may be a related party within a corporate group, or an unrelated third party entity.
The SFC has not published any guidelines on outsourcing, but has endorsed the Principles on Outsourcing of Financial Services for Market Intermediaries published in 2005 by the International Organisation of Securities Commissions (IOSCO). The press release is available here: http://www.sfc.hk/web/doc/EN/general/general/press_release/05/05pr31_iosco_pr.pdf
Our SFC-licensed firm currently outsources our trade settlement / confirmation processes, is there anything we need to do?
The licensed corporation should have policies and procedures in place to ensure proper due diligence in both the selection and monitoring of the service provider. In addition, there should also be mechanisms in place to protect IT security, preserve client confidentiality, maintain business continuity, and, if need be, ensure that the outsourced entity has obtained approval from the SFC to keep records or documents relating to the carrying on of the regulated activity.
Are accounting or legal services considered to be outsourcing?
Most companies will at some time engage external lawyers and accountants. Such services are not usually considered to be outsourcing pursuant to the IOSCO guidelines – the company is purchasing a service without the transfer of non-public proprietary or customer information.
Licensed corporations are advised to review any arrangements with third parties and ensure proper policies and procedures are in place in the event that these do amount to outsourcing and most importantly that the required records and/or documents are being kept at the approved premises in Hong Kong.
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