The financial sector is forward-thinking and preparing for a shifting world. Geopolitics, macroeconomic headwinds and the rapid development of technology have introduced new paradigms and evermore complex ways to deal with them. Meanwhile, regulations are constantly evolving to keep pace with this new world.
Since financial actors need to be ready to switch gears at a moment’s notice, their outsourcing strategy is of critical importance. The advent of the upcoming EU-wide Digital Operational Resilience Act (DORA), which will start applying from January 2025 onwards, is a tectonic shift that will specifically affect outsourcing activities across the EU as well as non-EU companies providing services to EU entities. Financial actors of all stripes must begin preparing themselves for it.
Financial players may need to turn to technologies such as cloud computing to maintain their profitability and expand their activities and client base, but many lack the in-house technical skills. According to the European Supervisory Authorities’ (ESAs) report on ICT Third-Party Providers (TPPs), most outsourced ICT services support critical or important operations and cannot be substituted. Luxembourg’s Commission de Surveillance du Secteur Financier (CSSF) has stated that financial innovation and adapting to new technologies were some of the main challenges for 2023.
Some key takeaways from the report
Outsourcing remains very high in Luxembourg’s financial centre, as 90% of respondents outsource some kind of activity. The rate of outsourcing is high among all types of respondents, regardless of their sizes.
Financial institutions in Luxembourg are either fully outsourcing certain business functions or not outsourcing them at all. The partial outsourcing of functions has significantly fallen.
Respondents increasingly favour quality and expertise over cost when it comes to outsourcing.
The outsourcing landscape is undergoing major changes in anticipation of the EU’s Digital Operational Resilience Act (DORA).
Use of AI is not as commonly outsourced as other functions, but this is likely because many firms have not implemented it yet.
The asset and wealth management industry outsources more than the insurance or banking sectors, while banks are the most concerned about DORA’s implications.
Sourcing Strategies Survey Report 2023
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