The market regulator has invited feedback on outsourcing activities relating to intermediaries by 05 February 2011
Mumbai: Capital market regulator SEBI has today put up a discussion paper on activities outsourced by market intermediaries like R&T Agents, DPs, stock brokers and portfolio managers by inviting suggestions to its proposals by 05 February 2011. According to SEBI, the discussion paper comes in the wake of increasingly complex nature of outsourcing activities. The regulator is likely to come up with guidelines for intermediaries based on the suggestion received from various stakeholders.
“Since the third parties may not be subject to the regulatory discipline the activities and, not the accountability can be outsourced, outsourcing raises a variety of concerns both for the regulator and the outsourcing intermediary. While it is not desirable to ban outsourcing completely for obvious reasons, the concerns need to be addressed and the outsourcing needs to be organized in an orderly manner,” states the discussion paper.
The 18 page discussion paper says that outsourcing poses operational, reputational, and legal risks as the intermediary loses direct control of the job outsourced. SEBI have expressed concerns about intermediaries outsourcing their job to third person who do not have necessary infrastructure and ability.
Based on the principles of International Organization of Securities Commission (IOSCO) relating to outsourcing, SEBI has proposed that intermediaries should have a ‘comprehensive policy’ which would help assess how activities can be appropriately outsourced. SEBI has put the onus on the board of directors or its equivalent body for formulating such an outsourcing policy. It has also proposed to have a sound risk management programme in place. The intermediary should also conduct due diligence in selecting the third party and in monitoring of its performance, states the discussion paper.
The detailed report lays down numerous proposals and checks and balances which have to be put in place by the concerned intermediaries.
SEBI is proposing to streamline the outsourcing by laying down guidelines which explicitly mentions as to as to whom the job could be outsourced, what activities can be outsourced and what not, terms, and responsibilities of the third party and the intermediaries.
