Outsourcing is an increasing fact of life for the financial services industry in the Channel Islands, but local firms differ in their approach. However, industry participants agree that maintaining service quality is vital.
Guernsey’s outsourcing guidelines enables fund promoters to take advantage of the island’s regulatory regime without the island hitting capacity problems as a result of its population constraints, according to Joe Truelove, head of Channel Islands business development for Kleinwort Benson’s corporate fiduciary division.
“Outsourcing effectively provides greater capacity and scalability, in some cases, than would be possible if all functions had to be performed on-island,” he says. “Fund administration work is outsourced by a number of Guernsey service providers to other jurisdictions offering access to a deeper pool of staff. This is typically to cope with labour-intensive funds that have high transaction volumes, such as open-ended funds with daily dealing.
“The funds remain Guernsey-regulated and the local service providers retain responsibility for compliance with the local regulatory regime and provision of corporate governance services, but typically delegate back office work such as valuation production, registration and accounting.”
Truelove argues the key is finding the best fit for customers – and notes that outsourcing can be a two-way street. “Many of our new business referrals come from global fund administrators that have won a global mandate for a particular promoter with a range of funds in different domiciles,” he says.
“This may include some Guernsey funds, but the global administrator does not necessarily have a Guernsey office or expertise in the Guernsey regime, so it is unable to provide a full service to the funds.”
Paul Keltie (pictured), head of fund administration at HSBC Securities Services in Guernsey, says that while the need to outsource some services and processes is prevalent in the market, how it is done can vary.
He believes the industry is seeing a polarisation between global service providers that operate through international networks and offer services spread over several jurisdictions, and niche firms specialising in serving smaller and start-up funds that may not need heavy investment in more advanced technical services.
“However, these days you will find even niche players are looking to offshore processes and services to other jurisdictions to ensure that the point of delivery matches the needs of their clients,” Keltie says.
He says Guernsey firms are increasingly outsourcing operations to regions including South Africa, Asia and Eastern Europe, but also to Ireland. For the past five years HSBC Securities Services has outsourced processes to dedicated group service centres in Europe and Asia, although all the work remains within the HSBC group.
“It’s becoming accepted market practice, and clients shouldn’t see a decrease in the quality of service,” he says. “The imperative is that neither the investors nor your customer’s business should suffer. Outsourced processes are all part of the service delivery channel now and the administrator in Guernsey needs to demonstrate oversight and control over that channel.
“To maintain service standards, the relationship with the service provider to which processes are outsourced is of great importance. Employees there must be made to feel their work is valued and that they are part of a single team delivering the service.”
However, outsourcing does not suit every business model. Patricia White, managing director of Guernsey-based Legis Fund Services, strikes a note of caution, arguing that its success depends upon the robustness of the service level agreement and adequacy of oversight procedures.
“The merits of this strategy are obvious from a cost-saving perspective due to the use of lower-cost workforces and achieving economies of scale,” White says. “However regulatory requirements insist that the responsibility cannot be outsourced. The outsourcing entity must retain its ability to carry out these functions if required.”
Maintaining compliance with local laws and regulations should not be regarded as a formality. “These criteria are not always given sufficient consideration,” she says. “The challenge with this operating model is in offering the bespoke service levels increasingly demanded by clients. “Service level excellence is paramount to our strategy, which is why we don’t consider this model suitable for Legis.”
