AFM – Asset management sector should improve their management of outsourcing risks
On 26 July 2021, the AFM published a news release (see link, in Dutch) in which it urges companies in the asset management sector (licensed investment firms, AIFM managers and UCITS managers) to improve their management of outsourcing risks. Asset managers must comply with outsourcing rules stipulated in MiFID II, the AIFM Directive or the UCITS Directive. In sum, the AFM notes that many asset managers outsource activities, and that these structures entail risks. Research by the AFM shows that the measures taken by some asset managers in this area need to be improved. The AFM expects market participants to adjust their policies and practices in this area.
1. Focus areas for the sector
The AFM’s investigation is a follow-up to its earlier investigation ‘Keten in Beeld’ (link, in Dutch). This previous investigation showed that asset managers must do more to manage outsourcing risks. The AFM indicates that it sees improvement in the sector, but points out that there are still concerns that could jeopardise the stability and continuity of the sector. The AFM notes, for instance, that most market participants have an outsourcing policy in place, but that the implementation of the measures lags behind in practice. The AFM refers in this respect to its earlier letter (in Dutch) to the sector in connection with to its ‘Keten in Beeld’ investigation, in which it described a number of focus areas with respect to managing outsourcing risks.
The AFM has now concluded that these focus point have not been adequately transposed by all market participants into policy and/or control measures. The AFM expects market participants to comply with the outsourcing rules and to allow the depth of the control measures to grow in line with the complexity of a market participant’s business and the extent of the outsourcing. Every market participant must therefore assess which activities, that are carried out by a third party, formally qualify as outsourcing.
The AFM also emphasises in its letter that the (active) management of outsourcing risks (including the risk that necessary control measures are not implement, or are of insufficient quality) is of great importance. Market participants will therefore have to demonstrably adjust their policy and practices in this regard as well. This is the second warning of the AFM on this subject.
The AFM expects market participants to use the focus points offered by the AFM to further investigate and – if necessary – improve its organisation. The AFM has also announced that it will conduct further individual investigations into the management of outsourcing risks. Market participants should thus take into account the possibility that they will be selected for an individual investigation by the AFM.
Finnius can assist asset managers in converting the AFM’s focus points into policy and/or concrete control measures that fit the asset manager’s organisation.