The Alternative Investment Management Association (AIMA) has launched a new guide that sets out best practices for hedge funds when it comes to outsourcing. The guide will provide investment managers a global perspective when thinking about their own best practices.
AIMA has also released a new due diligence questionnaire to help in the selection of outsourcing service providers.
The DDQ will provide a starting point for hedge fund managers in documenting selection criteria for providers, such as custodians, prime brokers and fund administrators.
“Failures in operational and compliance controls to supervise can lead to enforcement actions. This, combined with the substantial increase in focus on outsourcing by European entities, makes outsourcing sound practices important for managers,” AIMA stated.
Outsourcing has been highlighted as a key focus for many regulators, including the UK’s Financial Conduct Authority (FCA) which, in January, expressed some concern at the potential significant effects outsourcing providers could have on a wide range of firms that rely on them.
Meanwhile, the European Banking Authority (EBA) is set to publish new guidelines for banks and investment firms that will supersede the 2006 CEBS Guidelines on outsourcing, which will likely form the basis on which European regulators approach outsourcing.
DDQs have already been used widely by network managers and global custodians when selecting sub-custodians, but have been criticised by users and sub-custodians over the length of the questionnaire and the amount of information they have been required to provide.
In November, the Association for Financial Markets in Europe (AFME) published an updated, shortened version of its DDQ with the aim of reducing the time and resources required by market participants to complete the annual due diligence process.
AIMA, Hedge Fund, EBA, FCA, Cayman