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Indian regulator moots outsourcing ban

Thursday 20 January 2011 - by Will Henley

The Securities and Exchange Board of India has proposed banning intermediaries from outsourcing services to third parties, claiming that the practice "defeats the purpose of regulation".

In a discussion paper launched this week, the regulator proposes clamping down on the transfer of responsibilities such as the clearing of instruments, fund management and all mutual funds investment activities.

It also wants to bar the outsourcing of the core management functions of depository participants and registrar and share transfer agents.

"Securities market intermediaries in many jurisdictions are increasingly resorting to outsourcing with a view to reduce costs, and at times, for strategic reasons," the Securities and Exchange Board notes.

"However, since the third parties may not be subject to the regulatory discipline and the activities - and not the accountability - can be outsourced, outsourcing raises a variety of concerns both for the regulator and the outsourcing intermediary."


In accordance with guidelines laid down by the International Organization of Securities Commissions (IOSCO), the regulator plans to introduce nine new principles for outsourcing intermediation services.

These include ensuring firms introduce a management programme and giving a board of directors responsibility over policy.

"Outsourcing of key activities by [companies] to unregistered third parties defeats the purpose of regulation," it continues.

The Securities and Exchange Board says it does not intend to completely ban the practice, but insists that outsourcing needs to be "organised in an orderly manner".

The transference of functions to third parties has too many operational, reputational legal risks, and therefore might fail the test of due diligence, it adds.


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READERS' COMMENTS
2011-02-16 08:57:13 | uma
good

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