The importance of transparency in third party relationships

In my line of work over the years, I have seen the financial sector is increasingly relying upon third-party vendors to provide the various services that we offer at RFA. This includes IT infrastructure, software development, data analytics, and cybersecurity management.

We act as partners to our clients and with this relationship comes an expectation of transparency. Their reliance on our services calls for the need for robust oversight to ensure their IT and business operations withhold the highest standards of compliance that correspond with regulatory requirements. Most importantly, transparency within my client relationships is crucial for maintaining trust and managing risks, not just meeting compliance obligations.

Here I summarise my thoughts regarding the importance of transparency in third-party vendor relationships for funds, particularly in terms of compliance and service standards.

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Understanding the nature of third-party relationships in relation to compliance

At RFA, we act as a service provider to financial institutions such as investment funds and banks. Our clients have their own offering and broad range of services. Their operational structure can often be complex and is always unique to the business. Clients will often hire me and my team because they want to leverage our specialist IT expertise, reduce their costs and improve their overall operational efficiency. Yet, the very act of hiring us also introduces inherent risks, including compliance-related risks, which must be acknowledged so they can be successfully managed.

From a compliance perspective, financial institutions are subject to a myriad of regulations. It goes without saying that failure to comply with regulations can result in severe consequences. Not only is compliance a legal obligation, it is also a critical component of maintaining trust and credibility with stakeholders including investors, regulators, and clients.

Due to the significant importance of compliance, when selecting a third-party service provider, transparency is a critical factor. This is especially important as there are several challenges that firms face when it comes to ensuring compliance with third-party service providers.

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Overcoming compliance challenges

A key challenge for firms is ensuring that their choice of third-party vendors adhere to the same regulatory standards and best practices as the financial institution itself. Without full transparency, a lack of direct control over third-party service providers’ operations and processes can lead to potential compliance gaps or breaches. In addition, coordinating compliance efforts across multiple vendors and jurisdictions can be challenging, especially in globalised financial markets with differing regulatory requirements.

Having transparency with a service provider is an invaluable component of any working relationship between a financial institution and a third-party. Transparency is a key part of our own value system at RFA and we ensure that all our clients have a clear overview of our own operations and compliance structure. This is one of the initial steps we take when it comes to building a working relationship and it acts at the backbone to all future work we carry out together. Not only is transparency a key part of our DNA, we are an international team working across all global markets. We ourselves keep up to date with the latest regulatory requirements in different jurisdictions, which makes us a great partner when it comes to ensuring the same level of compliance for our clients.

If you would like to learn more about our compliance solutions, feel free to reach out.