A new ViewPoint report from TowerGroup finds that global financial volatility and growing political instability are posing increasing problems for companies with offshore resources. TowerGroup believes that the recent terrorist attacks in Mumbai have further underscored the interdependencies and vulnerabilities of markets, companies, and individuals working in outsourced locations.

The financial services industry has invested heavily in offshore outsourcing and continues to do so. Political risk has always been taken into account, but because of market volatility, individual governments now have increasing power, which will lead to conflicting regulatory objectives, according to the TowerGroup report.

TowerGroup expects that financial service institutions (FSIs) looking to reduce costs and gain access to skilled business and technology resources through outsourcing will face new demands for operational resilience and business continuity. TowerGroup suggests that FSIs with cross-border exposure will need to secure new centres/centers of excellence around outsourcing expertise and management. Vendors that openly assist in improving visibility, transparency, and assurance of the quality of their services will find significant new business opportunity in FSIs.
"The challenge of effectively managing the risks of offshoring has been exacerbated by political events and terrorist attacks," said Guillermo Kopp, executive director and global research fellow at TowerGroup.

"Offshoring will continue to grow as global financial institutions seek to reduce costs, but the difference between investment from European and US FSIs will be notable."

TowerGroup anticipates that recent events in India will reinforce current sentiment against off-shoring by European FSIs. This trend is reflected in the growing influence of the UK and EU governments as a result of bank recapitalization. The story in the United States is different.

"US FSIs grappling with a challenging economic climate are looking to drive cost efficiencies," said Rodney Nelsestuen, research director in the Cross Industry practice at TowerGroup. "They are also confronting shifts in the political landscape that will drive law and regulation over the next four years with a mandate for change. These factors will result in increased interest in outsourcing. Yet while offshoring will likely not be viewed as negatively in the United States as in the United Kingdom and European Union, regulators will demand better balance with onshore resources, due diligence, and continuing oversight."

The TowerGroup ViewPoint titled ‘Risk Management in Offshore Outsourcing for Financial Services: Relearning the Lessons of Global Unrest,’ is available from www.towergroup.com

•Date:8th Dec 2008• Region: Various •Type: Article •Topic: Operational risk
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