The Securities and Exchange Board of India (SEBI) had agreed for a discussion paper to invite public comments so as to develop suitable guidelines for outsourcing by an intermediary. SEBI took this because of its concern over the increasing trend of key services outsourcing done by the market intermediaries to the third parties. The regulator has clearly stated in the discussion paper that the concerns need to be addressed and the outsourcing needs to be organized in an orderly manner, although outsourcing cannot be banned completely.
Currently, intermediaries like depository participants, stock brokers, portfolio managers, merchant bankers, registrar and share transfer agents are outsourcing some of their activities related to data entry, record keeping, despatch, front-desk customer services, and KYC verification among other services to unregistered third parties.
The regulator opined that as the intermediaries are registered based on their strength, outsourcing of key activities by them to unregistered third parties defeats the purpose of regulation and creates risk for the entire market. “It is therefore felt that the key activities which are crucial to the intermediation service may be delivered by the intermediary itself. The informal feedback indicates that the compliance with securities laws, investor grievance redressal and KYC must not be outsourced under any circumstance,” stated the Sebi discussion paper.
SEBI has listed out nine principles for outsourcing of any intermediation services which are inspired by the principles of IOSCO. Further, A proposal has also come from the regulator’s side for the intermediaries to ensure that outsourcing arrangements neither ‘diminish its ability to fulfill its obligations to customers and regulators, nor impede effective supervision by the regulators’.
The discussion paper also talks about establishing a comprehensive outsourcing risk management programme to address the outsourced activities and the relationship with the third party. Additionally, it has also proposed that the board of directors or equivalent body representing the market intermediary should assume the responsibility for the outsourcing policy and related overall responsibility for activities undertaken under that policy.
Source:-http://www.siliconindia.com/shownews/SEBI_concerned_over_the_increasing_trend_of_outsourcing-nid-77712-cid-5.html
