To Host or Not To Host

Finding the right staff is never easy, and when the staff you are looking for work in compliance, risk management and oversight, the search becomes infinitely harder.

In banking and financial services, compliance advisory skills are the most in demand according to 59% of companies surveyed in the Robert Walters/totaljobs/Jobsite survey of more than 5,000 professionals in the UK last year. With Brexit firmly on the horizon one way or another on October 31 this year, the skills shortage in the key areas of compliance, risk management and oversight is likely to be exacerbated even further.

One way around this difficulty is to use an outsourced solution, but there are pros and cons to this that you need to consider before deciding on in-house or external regulatory hosting service.

IN-HOUSE

Pros

If you decide to go down the in-house route, you have complete control over the way your staff operate and the way they are trained. You can choose the staff you want to deal with your regulatory oversight and because they are fully integrated into your team and business, they will see everything you do.

Also, because they are always in your own office, any decision making can be dealt with in your timeframe without delay.

Cons

Due to the current skills shortages, which are set to get worse as a result of Brexit, you may find it hard to get the calibre of staff you need for your business. If you need to get staff from overseas, then not only will you have to cover all their employment costs, including pensions and holiday pay, you may also have to pay a relocation package and deal with any visa requirements.

While these staff may have extensive experience before they arrive, once they are with you, they only have your company’s regulatory requirements and ethics to deal with and learn from. While they will continue with their training, which no doubt helps to offset this, all CPD and relevant regulatory courses will also need to be fully funded by you.

EXTERNAL/OUTSOURCED SOLUTIONS

Pros

Using an outsourced solution means you only pay for the services you need, whether risk management, compliance or oversight, and all training and CPD is paid for by your provider, which limits your exposure to additional costs. In addition, you don’t have to spend money or time getting the right staff in place, and you have only the set costs to pay for the outsourced services, no pensions, no holiday or sick pay required.

External compliance or risk management staff will be dealing with a wide range of companies and situations, which ultimately means your oversight will be better as they will be able to approach most situations your company experiences from a position of knowledge, especially if they have dealt with similar issues elsewhere with a satisfactory conclusion. It can help your business move forwards more quickly if the worst happens.

Also, from a regulatory perspective, a third-party providing oversight means there is a ‘buffer’ between your company and the regulator if something does go wrong. They will be held responsible, although don’t think this will not filter down to your company too. It will.

The outsourced solution may also provide for a broader set of resources such as investment or portfolio management expertise, industry connections and referrals which if sought as an independent service could be very costly

Cons

Since your regulatory host is outside of your business, you may need to wait longer for an answer than you would if you were asking someone in the same office. It will depend though, as the additional experience of an outsourced provider may mean in some cases the answer comes more quickly than it might with an in-house staff member who has to do additional research on the issue.

There is no doubt that you will have no control over the staff you are working with externally, so they cannot be influenced by you or your business. To be fair, any business that is properly compliant should welcome this rather than consider it a hindrance.

Yes, they will not be fully integrated into your business, and you will need to report on all aspects of your business and transactions to comply with their requirements. But the oversight will always be rigorous, and it means your company becomes more used to reporting in the way the regulator expects. Any appointed representative of an external regulatory risk hosting company will need to comply with conditions, and these will be akin to the wider MiFID, AIFMD and UCITS regulatory requirements.

There is no doubt that for some investment businesses and advisory service providers an in-house solution is better. But if you are keen to explore whether an external regulatory hosting service would make sense for your business, then please get in touch on +44 203 880 6641or by emailing info@blackheathcapital.com.