A sourcing strategy for the middle offices in financial institutions

Abstract

This article examines the strategies of sourcing the middle office functions in financial institutions. While some functions, in particular the back office functions in financial institutions are popularly and successfully outsourced or co-sourced, it may not be appropriate to do so for sourcing the functions of middle offices. Outsourcing or co-sourcing of the middle offices implies contracting out the risk management function of a financial institution partially or completely. This may reduce the effectiveness of risk management implementation and may potentially expose the institution to great risk. This article compares different strategies, namely outsourcing, co-sourcing, and shared services; and shows that shared services has many advantages over the other two strategies.