City IT: Managers must monitor risks from outsourcing

IT directors in the financial sector will have to show that they are managing operational risk when outsourcing key IT functions,...

IT directors in the financial sector will have to show that they are managing operational risk when outsourcing key IT functions, under new regulations planned by the Financial Services Authority (FSA).

"Gone are the days when companies could just make a decision to outsource their main IT operations to cut costs. The FSA now wants to fully understand what is going on with your operating procedures," said Paul Whitaker, risk manager at investment firm Threadneedle Asset Management.

He said that financial businesses will be encouraged to consider the impact that outsourcing has on their operational risk profile.

Outsourcing any business function usually implies less control over people, pro-cesses and systems, he said.

Companies will have to inform the FSA of the extent to which their supplier will provide business continuity for outsourced operations. They will also have to show that adequate controls are in place in case outsourcing arrangements are changed or terminated altogether.

Companies will also have to ensure that independent auditors will have access to the functions and processes that have been outsourced.

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