Last week, the Financial Conduct Authority (“FCA”) published an update to its webpage outlining factors for UK firms to consider following the end of the Brexit transition period on 31 December 2020, including in respect of how it may impact UK firms' outsourcing and third party relationships. In this Law Now article we highlight the updates made to the outsourcing section, which has been expanded by the FCA to provide more of a focus on business continuity, and the key points for firms to consider.
Outsourcing and third party relationships
The updated FCA guidance reminds UK firms of the need to ensure business continuity in relation to their outsourced functions following the end of the Brexit transition period. In particular it urges firms to think about how their outsourcing and third party relationships will be affected at the end of the transition period, and to consider any associated operational risks and the potential harm to consumers that may result from any change or disruption to the outsourced services. The FCA states that UK firms should have a clear understanding of their dependencies on outsourcing or third-party service providers so that they are able to assess whether they will be able to continue providing their services after the transition period.
The FCA has set out the following indicative list of questions that firms can ask themselves in order to help them to understand how the end of the transition period may affect their outsourcing arrangements:
1. Have you identified your key third-party service providers (“Key Service Providers”)?
2. Have you considered if these Key Service Providers will be materially affected by the end of the transition period?
3. Have you and your Key Service Providers discussed your respective plans for the end of the transition period to ensure service continuity?
4. Have you considered the potential demand for change management resources at Key Service Providers (arising from more than one client making increased demands upon the Key Service Provider)?
As we edge closer to the end of the transition period date of 31 December 2020 (which the UK Government has confirmed will not be extended), this update from the FCA is a timely reminder that UK firms need to:
- consider the effects that exiting the transition period could have on their outsourcing and third-party relationships;
- undertake and update due diligence and risk assessments on, and use governance channels to discuss dependencies, risks, concerns and potential work arounds or service changes with, Key Service Providers; and
- as appropriate, develop and/or implement contingency plans to ensure that they remain operationally resilient and can ensure continuity of service to their customers after the end of the transition period.
The FCA has stated that, until the position as to what future arrangements will be in place between the UK and European Union becomes clear, they expect UK firms to continue to consider the implications of a range of scenarios (including that the UK and the European Union do not conclude a free trade agreement or make any equivalence determinations before the end of the transition period on 31 December 2020).
For information about the impact of Brexit on the financial services sector, please see ‘UK/EU financial services after Brexit – how will this impact UK firms?’ and our Brexit RegZone webpage.
Article co-authored by Fatima Butt