What financial sector firms should be doing about outsourcing risk

Will Green is news editor of Supply Management
26 June 2020

Firms in the financial services sector should be reviewing contracts to reduce risks associated with outsourcing following the coronavirus outbreak.

Law firm RPC said disruption in key outsourcing markets including India, South Africa and Poland was likely to affect the way services – such as office administration, call centres, IT, and finance – are delivered to UK businesses.

Charles Buckworth, partner at RPC, told SM: “Anything that adds risks from a regulatory perspective into that supply chain, that will be of concern. They will want to enhance monitoring of suppliers.”

He added: “We are seeing an increase in disputes; an increase in customers chatting with suppliers to work out a way forward.”

RPC said regulators had made it clear they were concerned about the financial services sector becoming exposed if suppliers become insolvent or get into difficulties.

Mark Crichard, partner at RPC, told SM: “Is my supplier in financial difficulty? Have they seen a drop-off in business that makes them more vulnerable and do I need to think about disaster planning? People will have to step back and ask, ‘What does this do to my business continuity planning?’ People will start spending more time on that.”

RPC said firms were doing three things in response:

1. Requesting financial data from suppliers

Crichard said: “Most of the published data you get is largely out of date. You are going to have to ask your supplier for data that’s current. If there’s nothing in the contract requiring them to do that it might be a challenge.

“The bigger suppliers will be more willing to open up more information. They will recognise their customers will want this information.”

2. Financially supporting suppliers

This support is taking the form faster payments to suppliers and even advanced payments in certain situations.

3. Bringing outsourced operations in-house

RPC said firms must assess whether they have the capacity and required skillsets to provide operations. And even if it’s possible to do so, businesses may be faced with the challenges posed by remote working.

Crichard said: “A large proportion of outsourced services are key functions. You really want to anticipate problems rather than wait for them to happen.

“We are in a market where people are uncertain, so a supplier needs to be open to discussions about how things are going in order to maintain good relationships.”

He added: “I would recommend anyone to look at their contract to see if this happens again, do I need to do something different?”

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