The burden of regulation is unlikely, almost certain not actually, to get any lighter. The real question is: how do procurement organisations in UK-regulated firms align approaches to third-party risk with the regulators’ fuzzy interpretation of concepts like ‘relationships’ and ‘criticality’?
The burden of regulation is unlikely, to say the least, to get any lighter. The real question is: how do procurement organisations in UK-regulated firms align approaches to third-party risk with the regulators’ fuzzy interpretation of concepts like ‘relationships’ and ‘criticality’?
It was this dilemma which framed much of last week’s debate, in which representatives form the UK-based financial services procurement community gathered in the heart of London’s City to talk about third-party risk. The event, hosted in partnership with Ariba, was engaging, revealing and, perhaps unsurprisingly, regulatory uncertainty was a dominant theme.
So, how many tiers in any one category’s supply chain does the regulator look, for instance, when determining where accountability starts and stops with the firm? And how far does a supplier-relationship have to penetrate the organisation before it is deemed critical, and is this different across the various categories of spend?
What financial institutions under the supervision of regulators the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) must come to terms with, experienced attendees reflected, is that these questions will never be answered in any definitive way.
Firms are now well aware that when an operation is outsourced, the responsibility for the safety and soundness of that operation is not. The challenge for UK-regulated institutions arises out of the guidance, or principles-based, approach adopted by the official bodies. Effectively, what this approach means is that firms looking for targeted, prescriptive advice from the regulators are going to be disappointed.
Officials work on whatever they saw last and if it trumps what they saw before, it then becomes best-in-class. You can imagine how frustrating a field that is in which to play, and there is a feeling, certainly one that was expressed in these discussions in London, that being told exactly what compliant looks like would be advantageous.
The obvious question, then, is how do you then go about demonstrating compliance? It clearly creates a challenge.
One approach beginning to be used by financial companies with global operations is to take US regulator the Office for the Comptroller of the Currency’s (OCC) standards - understood to be far more explicit than UK or other international equivalents - as a baseline for global entities - a kind of common denominator approach.
Under the rules, among other things, firms are enjoined to:
- Assess the complexity of the arrangement, such as the volume of activity, potential for subcontractors, the technology needed, and the likely degree of foreign-based third-party support;
- Assess the complexity of the arrangement, such as the volume of activity, potential for subcontractors, the technology needed, and the likely degree of foreign-based third-party support; and
- Consider the bank’s contingency plans in the event the bank needs to transition the activity to another third party or bring it in-house.
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This article is a piece of independent writing by a member of Procurement Leaders’ content team.
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This content was assembled for you by the YQ Matrix platform
The views expressed in this post and throughout the series are the autor's own and not intended to reflect the views the YQ Matrix platform, its users or any associated organisations.
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