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Firms liable for incorrect outsourcing under MiFID

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Article 13(5) of MiFID
states: "An investment firm shall ensure, when relying on a third party
for the performance of operational functions which are critical for the
provision of continuous and satisfactory service to clients and the
performance of investment activities on a continuous basis, that it
takes reasonable steps to avoid undue operational risk."

As usual, we quote some regulatory guph and then wonder what the hell it means. 

particular ditty is being viewed by most as getting to the heart of a
firm's outsourcing operations and ensuring that those contracts take reasonable assurances to manage any possible operational risks. 

The thing is, how do you eradicate operational risk? 

we say, as everything is a possible risk.  The risk that your
outsourcer might miss a transaction, might have some downtime, might
not route through the best execution process you use ...

OK, so
all you need to do is to recontract with your outsourcer to make sure
that these risks are minimised, addressed, discussed and contractually

That's the bit that apparently most firms are messing up
at the moment because it means new contracts - you cannot grandfather
existing deals - and many organisations are only just realising this. 

A bit late, as we're now under two months away from November 1 and the timer is ticking ...

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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