By Paul Kelly
The FCA continues to provide more granular guidance to regulated firms to mitigate operational risk that could otherwise prove extremely serious for both firms and for their clients. Funds are required to manage their vendor relationships in a way that meets these FCA guidelines, so they need to be able to withstand the scrutiny of robust compliance and operational testing.
Linear Investments is well-placed to appreciate the importance and complexity of meeting these guidelines, since the company itself is a vendor provider, offering mid-size funds custody and clearing services via a its global custodians. We are able to offer a highly cost-effective solution thanks to our access to prime brokerage terms across multiple assets including Equities, Fixed Income, Derivatives, FX and selected fund structures, and our large portfolio of accounts, all sitting under one umbrella.
The FCA guidelines state that all firms must have a thorough understanding of all processes and people involved in the supply of functions and services provided by 3rd party entities, in addition to their own, and that firms must take all reasonable steps to reduce the risk of operational disruption to clients both inhouse and throughout all outsourced systems and procedures. Due diligence of the vendor provider is now required to further reduce risk to the client and ascertain the financial and legal good health of the business.
Most important, and a point which is easily overlooked, is the fact that 3rd parties must now make themselves open to assessment by the regulator and that there must be compliance of this throughout any extended chain, not only in keeping with FCA regulations but also those of the ESA too, who may wish to see a transparent paper trail of relevant and sequential data as evidence.
Linear’s end to end reporting on every transaction is a function which is monitored by an in-house compliance team. We also have a team of operational experts who are extremely experienced and used to working with high levels of accountability. Our business management approach is flexible and responsive to enable a quick and appropriate response with turnkey solutions that are designed specifically for each client.
As a regulated firm itself, Linear Investments’ blueprint for successful trading has been created through strict controls of its own governance and risk assessment, so we know what the FCA expects. Careful and accurate attention to detail whilst heeding their requirements, has created a well-run 3rd party organisation, which offers tried-and-tested expertise and multi-dimensional resilient platforms to mid-size entities.