Speaking at the Investment Company Institute’s meeting in Washington on technology and operations, Andrew Donahue, director of the division of investment management at the Securities and Exchange Commission, warned fund companies to be careful about outsourcing back-office functions, particularly if they are trading complex securities, such as derivatives.

If a fund company does outsource back-office trading functions, it should be ensure that recordkeepers coordinate with traders. Even if it doesn’t outsource, it should be sure that its back-office staff is up to speed on new types of securities being traded.

“In this incredibly fast-paced, complex, global marketplace, I can’t help but wonder, how are firms keeping up?” Donahue said. “Our markets and the fund business have continued to become increasingly fast and complex. One small error, such as wrongly entering one digit of a code, can magnify to such an extent, and at such incredible speed, the results can be catastrophic.

“With the precision of computers today, it is so easy to take them for granted and forget that they still rely on occasional human imprecision in our system processes,” Donahue added.

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