outsourcing arrangements john sudano, senior associate hall & wilcox, lawyers
TRANSCRIPT
Outsourcing Arrangements
John Sudano, Senior AssociateHall & Wilcox, Lawyers
Outsourcing Prudential Standard (SPS 231)
• Came into full force from 1 July 2013• Applies to outsourcing of material business functions• Outsourcing is common in the superannuation industry• SPS 231 deals with requirements a trustee must satisfy
before and after entering into an outsourcing agreement
Material outsourcing• In a nutshell, a business activity is ‘material’ if it has the potential to have a
significant impact on the trustee’s business operations, the interests or reasonable expectations of beneficiaries etc if disrupted
• Typically:– Administration agreements– Insurance administration agreements– Investment management agreements– Custodial agreements– Promoter agreements
• APRA envisages that where uncertain whether an agreement involves outsourcing a material business activity trustees should treat the business activity as material.
Drafting tips and traps• Comparing old requirements and new requirements [main
differences are in italics below]
• Use a checklist of content requirements in SPS 231 and complete when you review an agreement and send to proposed service provider with recommended changes
Drafting tips and traps• Agreement must be signed by all parties before the arrangement
commences• State scope and services to be provided - clearly describe the
deliverables and related service standards• Start and end dates• Default arrangements and termination provisions – consider
notice period and transitioning• Dispute resolution arrangements – ensure arrangement is certain
Drafting tips and traps• Liability and indemnity provisions – limit to trust property and
service provider is liable for subcontractors• Insurance - for example whether the service provider has
adequate professional indemnity insurance• Confidentiality, privacy and security of information• Content and frequency of reports to be provided by the service
provider – regular reporting to the trustee should be required given requirement to manage outsourcing relationships
Drafting tips and traps• Pricing and fee structures• Audit and monitoring procedures, service level and performance
requirements and review provisions – trustee and auditors to have ability to inspect and access all documents relating to the agreement. Include service standards for each deliverable
• Business continuity management – trustee should be able to request a copy of the service provider’s BCP and should be given a copy of the report of the annual BCP test conducted by the service provider
Drafting tips and traps• Address the form in which data is to be kept, identify ownership and control
of data – where relevant, provide for the return of fund data to the trustee• Address subcontracting and require the service provider to accept
responsibility for the actions of any subcontractor• Allow APRA access to documentation and information related to the
outsourcing arrangement• Service provider must cooperate with APRA’s requests for info and
assistance and the agreement must provide the right to conduct on-site visits
Drafting tips and traps• It is advisable although not critical to include a clause where
a service provider agrees to not disclose or advertise that APRA has conducted an on-site visit
• Provide for any outsourcing to an offshore provider (including through a sub-contractor) if relevant – it is suggested that the service provider be required to obtain the trustee’s prior approval before subcontracting offshore
Insurance arrangements• Insurance policies themselves are not outsourcing
arrangements• Service level agreement related to services provided by
insurers in making insured benefits available may be material outsourcing arrangements
• There are therefore times insurance arrangements must comply with both SPS 250 and SPS 231.
Privacy clauses• Australian Privacy Principles (APPs) not the old National
Privacy Principles.• It is critical that where any personal information is to be
disclosed offshore the offshore party is required to comply with the APPs in handling the personal information.
Disclaimer• Information in this presentation is current as at 8 October
2014.• This presentation includes information about drafting
outsourcing agreements. It is not, however, to be used or relied upon as a substitute for professional advice. Before acting on any matter in the area, you should discuss matters with a professional adviser.