The incoming Senior Managers & Certification Regime (SMCR) has been cited as a key driver for fund managers and institutional investors to outsource their dealing desks – a front-office activity once considered too central to fund management to be handed to third parties.
It was Gary Paulin, global head of integrated trading solutions at Northern Trust, that made the link between SMCR and outsourced dealing in a Funds Europe webinar, presented in association with Northern Trust.
There are other drivers: for example, BNP Paribas Securities Services recently found 20% of institutional investors were considering dealer outsourcing due to costs.
Both Northern Trust and BNP Paribas provide outsourced dealing services.
What is it about the SMCR – and similar regulations appearing in other parts of the world, such as Ireland and Australia, Paulin says - that means he cites it as a key driver?
SMCR is forcing a change in corporate culture by making senior management more accountable.
“It is this personal accountability – making individuals accountable for the areas they are responsible for – that I think will impact business models the most,” says Paulin.
In many cases, chief operating officers or other C-suite professionals will be the in-scope senior managers responsible for dealing - not necessarily the heads of dealing. As Paulin explains: “The COO might not feel comfortable about the idea of managing and being personally responsible for the trading activity and all of the traders – and instead feel more comfortable outsourcing that activity to an appropriate vendor and just having the responsibility and oversight for that relationship.”
Where COOs are less familiar with dealing operations, they may feel pressured by business risks arising from internal dealing desks, such as key people leaving and unsupervised overnight dealing. Paulin points out, however, that while the activity can be outsourced, the responsibility for it cannot.
*Gary Paulin took part in a Funds Europe webinar in June, sponsored by Northern Trust, called ‘2019: The tipping point for outsourced trading’.
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