On August 16 2001 the Finnish Financial Supervision Authority (FSA), the authority supervising the Finnish securities market, issued an official statement regarding the use of agents in offering banking and investment services. The FSA has reviewed its views on the outsourcing of certain operations of investment firms and credit institutions. This statement replaces a previous statement issued in February 1999.
According to the introduction, the statement addresses both the use of agents in offering investment and banking services and the outsourcing of data and risk management systems. The purpose of the revised statement is to clarify the issues that a service provider should take into consideration when outsourcing its operations. These issues include risk management, data protection and the supervision of outsourced operations.
According to the statement, there is no general prohibition on outsourcing. The FSA specifically wishes to point out that outsourcing is an acceptable way to organize the operations of an investment firm or a credit institution. By deviating from its earlier views, the FSA further states that even operations belonging to the core business of an investment firm or a credit institution may be outsourced.
A key element relating to outsourcing is supervision and especially the possibility of both the FSA and the management of each investment firm or credit institution to supervise the operations subject to outsourcing. The outsourcing of operations may not encumber the supervision of the respective regulated entity. The FSA will, according to the statement, pay special attention to the fact that, irrespective of whether operations have been outsourced or not, all investment firms and credit institutions continuously meet the requirements set in the relevant acts for the granting of an operating licence for an investment firm or a credit institution. Outsourced operations will not be evaluated or supervised as individual units but together with the entire business as a whole. The FSA will evaluate the outsourcing activities of an investment firm or credit institution on the basis of general risk management regulations.
The regulated entity will remain responsible for all its operations, irrespective of whether these operations have been outsourced or not. The regulated entity will be liable towards its clients and other counterparties for any breaches or omissions committed by an agent. The respective investment firm or credit institution is further under obligation to select agents and other service providers that are financially stable and aware of the provisions governing the outsourced business as well as the obligations of the regulated entity. The regulated entity will further see to it that the agents comply with the relevant provisions and code of conduct rules set out in the Act on Credit Institutions and the Securities Market Act.
Prior to the outsourcing of any operations, an investment firm or credit institution must, according to the statement, conclude in writing a plan and an agreement with the agent concerning the outsourced business unit or activity. It is further required that the board of directors makes all decisions relating to the outsourcing of significant business operations.
It is specifically provided in the statement that the FSA must be notified in advance of all outsourcing activities concerning significant business operations. A notification is not required if the entity to which certain operations have been outsourced belongs to the same consolidation group with the investment firm or credit institution.
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