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Firms must change tack to meet financial regulators’ expectations on supplier risk

May 27, 2021 | FCA

Link(s):https://www.bankofengland.co.uk/-/media/boe/files/prudential-regulation/consultation-paper/2021/march/ps721.pdf?la=en&hash=6C70BEE48B89D7965D43894DB848FC41CD5EC6C0
PS21/3 Building operational resilience | FCA

Context

As part of the continuing work on operational resilience the PRA issued a supervisory statement on outsourcing and third-party risk management in March 2021. This statement sought to confirm and to strengthen the approach of treating outsourcing and other third-party arrangements in much the same way.  This is seen as good practice but should be subject to a proportionate and risk-based approach.  The FCA also issued its Policy Statement PS 21/3 in relation to operational resilience in March 2021. We have previously provided commentary on the FCA Policy Statement in our 1st April 2021 Weekly Update.  Pinsent Masons, the law firm behind the industry news source out-law.com, recently published an article picking up on a particular theme within the PRA’s publications.

Key points to note

  • Neither of the papers above apply to insurance intermediaries directly, but the FCA’s Policy Statement indicates that firms which are not directly impacted by the new Rule requirements should treat them as good business practice and should consider whether to apply the measures.
  • Firms should review their approach to financial resilience oversight and consider whether any outsourcing (so including Appointed Representatives and Introducer Appointed Representatives) and third-party supplier arrangements should make provision for financial resilience due diligence and monitoring.
  • For those types of firms which are directly impacted by the FCA’s new Rules and the PRA’s Policy Statement, the Pinsent Masons article suggests that “there is a large gap for the financial services sector to close in developing and maintaining internal policies and risk assessment frameworks to meet the new standard required by regulators.”
  • The FCA’s formal rules and requirements come into force in March 2022.

Next actions

None – for information and awareness for FCA solo-regulated firms in the main, but firms should consider the implications of carrying out appropriate financial resilience checks on all outsource and supply arrangements that they have in place, including ARs and IARs.