Dear CEO... two years on...


Dear CEO...two years on...

It is now more than two years since the regulator sent out its Dear CEO letter setting out its concerns that, in the event of financial distress or severe operational disruption at one of a small number of outsource providers, the Asset Management sector would not be able to perform critical and important activities – having a detrimental effect on investors.

Events in a substantial part of the UK industry last month saw aspects of the regulators fears play out – albeit with a recovery in a short enough time period to minimise contagion and systemic risk.

From our work across a diverse range of investment firms we have seen the significant strides which can be taken in relatively short timescales to devise and document practical, robust and comprehensive contingency plans to address the concerns set out by the regulator whilst taking into account the nature and scale of potential impacts plus feasible options to mitigate the risk.

Industry responses range from a full analysis of exposures, triggers and impacts; to generation and evaluation of tailored contingency options by line of business, third party provider and available solutions; to detailed plans setting out comprehensive recovery and resolution steps to mitigate risk and impact on investors from day one of a significant event occurring.  Whilst the regulator stated it is not looking for industry participants to move to an alternate arrangement in a specified period, they need to have a plan, with clear actions and accountabilities, which operate in advance of, and ramp up at the time of, an event the regulator is concerned about.   

As Winston Churchill said: “He who fails to plan is planning to fail”.  The question now is, would your plan pass muster if the regulator came knocking tomorrow?…

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Paul Sutton

Paul is one of the founding Directors of Knadel. He has extensive experience in operating model design, organisational change and outsourcing within the Investment Management industry. Paul will often undertake the role of ‘trusted advisor’ to senior management contemplating and executing strategic projects.

+44 (0)20 7489 6363

Dear CEO - Knadel's view on risk mitigation

Key factors that should be considered to ensure that the regulator's concerns - and in fact good business practice - are satisfied.