• COLL Part 8.5 COLL Part 8.5 Outsourcing—QFC Schemes

    • COLL 8.5.1 What is Outsourcing?

      (1) For these rules, outsourcing, for a QFC scheme, is any form of arrangement that involves the operator or independent entity of the scheme relying on a third party service provider (including a member of its group) for the exercise of a function in relation to the scheme under these rules, any other Rules, the constitutional document or the latest filed prospectus.

      Note Group, exercise, function and latest filed prospectus are defined in the glossary. Rules is defined in INAP. Constitutional document is defined in r 3.1.1.
      (2) However, outsourcing does not include the following arrangements:
      (a) discrete advisory services (including, for example, the provision of legal advice), audit services, procurement of specialised training, billing, and physical security;
      (b) supply arrangements and functions (including, for example, the supply of electricity or water and the provision of catering and cleaning services);
      (c) purchase of standardised services (including, for example, market information services and the provision of prices);
      (d) the appointment of a group employee to exercise a controlled function for an authorised firm.

      Note Employee, controlled function and authorised firm are defined in the glossary.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.5.2 Outsourcing by Operator—All QFC Schemes

      (1) The operator of a QFC scheme may outsource its functions in relation to the scheme in accordance with this part, and not otherwise.

      Note The outsourcing provisions of CTRL do not apply in relation to an outsourcing of functions under this part (see CTRL, rule 8.1.1).
      (2) However, the operator must not outsource to the independent entity, or to a related person for the independent entity, any of the functions of the operator under a provision of these rules, the constitutional document, or the latest filed prospectus, if rule 4.2.3 (1) (Oversight functions of independent entity—all QFC schemes) applies to the provision.

      Note Related person is defined in the glossary.
      (3) Subrule (2) does not apply to the outsourcing to the independent entity of the function of providing scheme administration.

      Note Providing scheme administration is defined in the glossary.
      (4) Also, the operator must not outsource functions if the outsourcing may adversely impact on the Regulatory Authority's ability to supervise the operator's activities.
      Amended by QFCRA RM/2012-5 (as from 1st July 2013).
      Amended by QFCRA RM/2021-1 (as from 1st July 2021)

    • COLL 8.5.3 Outsourcing by Independent Entity—All QFC Schemes

      (1) The independent entity of a QFC scheme may outsource its functions in relation to the scheme in accordance with this part, and not otherwise.

      Note The outsourcing provisions of CTRL do not apply in relation to an outsourcing of functions under this part (see CTRL, rule 8.1.1).
      (2) However, the independent entity must not—
      (a) outsource to the operator (or, if the QFC scheme is a CIC or CIP, to a member (however described) of the governing body of the CIC or CIP) any of the functions of the independent entity under rule 4.2.3 (Oversight functions of independent entity— all QFC schemes) or rule 4.2.6 (Property safeguarding functions of independent entity— all QFC schemes); or

      Note CIC and CIP are defined in r 1.3.7 and r 1.3.8 respectively. Governing body is defined in the glossary.
      (b) outsource to a related person for the operator (or, if the QFC scheme is a CIC or CIP, to a related person for a member (however described) of the governing body of the CIC or CIP) any of the functions of the independent entity mentioned in paragraph (a); or

      Note Related person is defined in the glossary.
      (c) outsource to a person the function of holding documents evidencing title to scheme property unless the person is prohibited under the outsourcing agreement from giving them to a third party without the independent entity's agreement.

      Note Document evidencing title is defined in the glossary.
      (3) Also, the independent entity must not outsource functions if the outsourcing may adversely impact on the Regulatory Authority's ability to supervise the independent entity's activities in relation to the scheme.
      Amended by QFCRA RM/2012-5 (as from 1st July 2013).
      Amended by QFCRA RM/2021-1 (as from 1st July 2021)

    • COLL 8.5.4 Outsourcing Notice and Information—All QFC Schemes

      (1) The operator or independent entity of a QFC scheme must give the Regulatory Authority reasonable notice of its intention to outsource a function under this part.
      (2) The notice must be given at least 10 business days before the day the operator or independent entity outsources the function.

      Note Business day is defined in the glossary.
      (3) The operator or independent entity must give the Regulatory Authority any information about the proposed outsourcing that the authority reasonably needs.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.5.5 Provisions Applying to Outsourcing by Operator and Independent Entity—All QFC Schemes

      (1) This rule applies in relation to an outsourcing of functions made by the operator or independent entity (the regulated entity) of a QFC scheme under this part to another person (the service provider).
      (2) The outsourcing must be in writing and in the form of, or part of, an agreement between the regulated entity and the service provider (the outsourcing agreement).
      (3) The outsourcing agreement must—
      (a) describe in adequate detail the functions (the outsourced functions) to be exercised by the service provider under the outsourcing; and
      (b) describe in adequate detail the service standards to be applied by the service provider in exercising the outsourced functions; and
      (c) state that it is an outsourcing agreement under these rules; and
      (d) ensure that the operator and independent entity can, at all times, effectively monitor the exercise of the outsourced functions by the service provider; and
      (e) authorise the regulated entity—
      (i) to give further instructions to the service provider about the exercise of the outsourced functions; and
      (ii) to withdraw the outsourcing at any time, including with immediate effect, if this is in the interests of the unitholders; and
      (f) not prevent the operator or independent entity from acting in the best interests of the unitholders in relation to the outsourced functions; and
      (g) not prevent the scheme from being managed in the best interests of the unitholders; and
      (h) ensure that the scheme's auditor can effectively exercise its functions in relation to the scheme; and
      (i) require the service provider to comply with these rules, and any other law applying in the QFC, in relation to the outsourced functions; and
      (j) apply the law of the QFC to the agreement; and
      (k) ensure that the regulated entity and its internal and external auditors have access to books, records and data relating to the exercise of functions under the outsourcing; and
      (l) ensure that the outsourcing provides appropriate protection for confidential information and personal data; and

      Note Personal data is defined in the glossary.
      (m) provide appropriate contingency arrangements; and

      Note See r 8.5.5 (2) and (3) (Outsourcing management).
      (n) require the service provider to deal with the Regulatory Authority in an open and cooperative way in relation to the exercise of the outsourced functions; and
      (o) require the service provider to give the Regulatory Authority access to books, records and data relating to the exercise of the outsourced functions; and
      (p) require the service provider to give the Regulatory Authority any information it reasonably requires about the outsourced functions; and
      (q) require the service provider to keep any records made by the service provider in relation to the outsourced functions for at least 6 years after the day they are made; and
      (r) prevent the service provider from further outsourcing any of the outsourced functions to another person without the prior approval of—
      (i) if the regulated entity is the operator—the operator; or
      (ii) if the regulated entity is the independent entity—the independent entity and the operator.
      (4) Without limiting subrule (3), the regulated entity must take the steps necessary to mitigate against any operational risks in relation to the outsourcing.
      (5) The outsourcing agreement may provide that it has effect only in stated circumstances or subject to stated conditions, limits and directions.
      (6) The outsourcing of the outsourced functions to the service provider—
      (a) does not relieve the regulated entity from any regulatory obligations in relation to the outsourced functions; and
      (b) does not prevent the regulated entity from exercising all or part of the outsourced functions, despite anything in the outsourcing agreement or any other agreement.
      (7) The regulated entity remains responsible for ensuring—
      (a) that all applicable QFC regulatory requirements are complied with in relation to the outsourced functions; and
      (b) that the outsourced functions are otherwise properly exercised.
      (8) The service provider must exercise the outsourced functions subject to the terms of the outsourcing agreement, including any conditions, limits and directions in the outsourcing agreement.
      (9) So far as the outsourcing agreement is expressed to operate as a delegation, these rules, all other laws applying in the QFC, the constitutional document and the latest filed prospectus apply to the service provider in exercising the outsourced functions as if the service provider were the regulated entity.

      Note Constitutional document is defined in r 3.1.1. Latest filed prospectus is defined in the glossary.
      (10) Without limiting subrule (9), a function may be exercised by the service provider on the service provider's state of mind if—
      (a) the exercise of the function is dependent on the regulated entity's state of mind; and
      (b) the function is included in the outsourced functions; and
      (c) the outsourcing agreement is expressed to operate as a delegation in relation to the function.
      (11) So far as the outsourcing agreement is expressed to operate as a delegation, anything done by or in relation to the service provider in relation to the outsourced functions is taken to have been done by or in relation to the regulated entity.
      (12) In this rule:

      state of mind includes knowledge, intention, opinion, belief or purpose.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.5.6 Outsourcing Management—All QFC Schemes

      (1) The operator and independent entity of a QFC scheme must exercise appropriate skill, care and diligence in selecting, entering into and exiting from outsourcings by them under this part.
      (2) The operator or independent entity must ensure that—
      (a) 1 or more senior managers approve and periodically review its policy and procedures for functions outsourced under this part, including its procedures for the following:
      (i) the assessment of feasibility;
      (ii) the assessment of risk;
      (iii) the assessment of impact on its functions;
      (iv) the costing of outsourcings;
      (v) the criteria for selecting service providers; and

      Note Senior manager is defined in the glossary.
      (b) every service provider has the ability and capacity to exercise reliably and professionally the functions to be outsourced to the service provider, both at the start of the outsourcing and throughout its life cycle, having regard, for example, to—
      (i) whether the service provider is regulated, to what extent and by whom; and
      (ii) whether the exercise of the outsourced functions is subject to specific regulation or supervision; and
      (iii) the risk that outsourced functions are not properly exercised because of the number of other persons using the service provider; and
      (iv) the financial stability and expertise of the service provider; and
      (v) potential conflicts of interest that may arise in relation to the outsourced functions.
      (3) The operator or independent entity must ensure that it has a comprehensive contingency arrangement to allow business continuity if there is a significant loss of services from the service provider, including an exit strategy and, if appropriate, partial exit and step-in clauses.
      (4) The contingency arrangement must cover, among other things, the following:
      (a) a significant loss of resources by the service provider;
      (b) financial failure of the service provider;
      (c) an unexpected termination of the outsourcing.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.5.7 Application of pt 8.5 to Further Outsourcing—All QFC Schemes

      (1) This part applies to the further outsourcing, whether or not by the third party service provider, of a function outsourced to the third party service provider under this part as if—
      (a) the further outsourcing of the function were an outsourcing of the function; and
      (b) all necessary changes were made.
      (2) To remove any doubt, this rule is subject to rule 8.5.5 (3) (r) (Provisions applying to outsourcing by operator and independent entity—all QFC schemes).
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.5.8 Systems and Controls for Outsourcings—All QFC Schemes

      If the operator or independent entity of a QFC scheme outsources a function in relation to the scheme under this part, the operator or independent entity must ensure that, as part of its risk management framework, it implements and maintains systems and controls to monitor the exercise of the outsourced function.

      Note Function and exercise are defined in the glossary.

      Derived from QFCRA RM/2010-05 (as from 1st January 2011)