Fund administrators, banks and other service providers supporting the asset management industry now rely heavily on "follow the sun" service models. Global "centres of excellence" have been established in numerous countries, with India especially critical to the business capability of many service providers. Yesterday, Prime Minister Modi gave the 1.3 billion citizens of India just four hours' notice before placing the country on Covid-19 lockdown, closing all offices. What does this mean for the asset management industry?
How do service providers organize their offshore operations?
Broadly speaking, offshore locations can be managed in three ways:
Which locations and countries are involved?
For asset managers (and their investors), the first step is to establish which cities / countries are used by which service provider. This may not be as easy as it sounds: it may not be transparent, for example, as to which fund administration offices are involved in servicing a particular fund. Admin offices in the US, Canada or Ireland, may "face" the client (the manager), yet reconciliations and other key work may be performed in India, the Philippines or other locations. Castle Hall has frequently identified cases where the fund manager is actually unaware that reconciliations are, for example, first completed in Manila before being handed off to a European office.
What work has been offshored?
Linked with our point above, asset managers and their investors should understand what work is conducted offshore by service providers. Position reconciliations, cash reconciliations, expense accruals, corporate action work, AML procedures, share registration input (thinking about fund administrators) can all be offshored.
For the asset manager, are there procedures or tasks which are time sensitive and critical which depend on an external vendor who, in turn, depends on offshored locations? In other words, are there any operations or procedures conducted in, say, India which, if unavailable, could flow upwards such that an asset manager could no longer continue operations? This is clearly the worst case scenario, and should be identified as rapidly as possible.
What can the asset manager do?
Clearly - as Castle Hall has noted in our previous blogs - these are unprecedented times. As an initial comment, it is reasonable to assume that no bank or administrator, and no offshore BPO, has thoroughly developed and then previously tested a comprehensive BCP to cover potentially thousands of workers not being able to access any of their offices for a sustained period of time. Once more, this is not a time for "gotcha" due diligence - rather a time to gather objective information and collaborate with all parties to seek to reduce risk and enable ongoing operations.
Some points to consider:
What are the BCP implications of offshored locations?
In disclosure, Castle Hall has an office in Manila, so has just triggered our own BCP in a key offshoring location. Our comments, therefore, draw on some of our own experience.
Our sense is that the challenges of ongoing Covid-19 lockdowns in key offshoring centers will have material effects across the asset management industry. In this case, the enduring success of offshoring - much bigger scale and lower costs - introduces another element in the Covid risk landscape that will evolve over the coming weeks.
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