The International Organization of Securities Commission (IOSCO) Technical Committee has published a final report – Principles for Outsourcing by Markets (Outsourcing Principles). The report contains a set of principles designed to assist exchanges, and market authorities when considering outsourcing arrangements.
Due diligence, contract with a service provider, business continuity at the outsourcing provider, security and confidentiality of information, termination procedures, regulator’s and market’s access to books and records and including rights of inspection have been identified as requiring consideration when a market outsources any of its processes, services or functions.
The outsourcing principles set out the factors that market operators should consider when deciding whether, and to whom, to outsource processes, services or functions. They are also designed to assist market authorities in their oversight of these arrangements. Currently, many markets and their market operators use third party service providers to perform processes, services or activities, that would otherwise be undertaken by the markets or market operators themselves.
In particular the report focused on the issues that could arise once exchanges began to consider outsourcing activities relating to regulatory and key operational functions. Outsourcing can bring substantial benefits for markets particularly through the lowering of costs whilst allowing access to expertise and technology. However, it also raises a number of issues that may impact on the effectiveness and integrity of markets, related to their ability to manage risks and monitor compliance with regulatory requirements.
Madrid-based IOSCO regulates more than 90% of the world’s securities markets. It is the international cooperative forum for securities regulatory agencies. Its members regulate more than 100 jurisdictions.
