While outsourcing does have various cost advantages, it has the potential to transfer risk, management and compliance to third parties who may not be regulated. A recent BIS Report on “Outsourcing in Financial Services” developed some high-level principles.
These CCPs can benefit from economies of scale and, potentially, provide greater scope for netting and risk mutualization. A key concern, however, is access. Until recently, access was limited to the largest financial institutions with global reach. Access is now is being broadened, but the global dealers – the so-called “G-14” – have considerable entrenched advantages in settlement costs.