The Central Bank publishes paper on the outsourcing activities of financial service providers
In light of continued concerns and evolving outsourcing trends, the Central Bank of Ireland embarked upon a review of outsourcing across the Irish financial sector. A key part of this review was the ‘Cross Sector Survey of Regulated Firms on Outsourced Activities’ (“the Survey”), which was issued to 185 regulated firms.
It appears that the level of board awareness and quality of governance and risk management remains far from satisfactory. Significant and proactive action is still required by boards and senior management of regulated firms across all sectors to meet minimum supervisory expectations in relation to outsourced service providers (OSPs), governance arrangements and risk management controls. Strong business continuity plans (BCPs) - which incorporate the activities of OSPs - must also be maintained and managed to ensure outsourcing by a regulated firm of any activity does not compromise that firm’s resilience.
Findings from the Survey and supervisory engagements suggest that this is not the case in many regulated firms.
The paper is presented in two parts. It sets out the Central Bank’s main findings in the context of its outsourcing review and also seeks to begin a discussion with all relevant stakeholders. While the paper is not intended to represent the Central Bank’s definitive guidance on outsourcing, Part A focuses on minimum supervisory expectations as they apply to the specific findings from the Survey and ongoing supervisory work.
Part B then discusses a number of key evolving risks across the outsourcing landscape. It also (i) sets out a number of key questions that must be considered and actioned by the risk management functions of regulated firms and (ii) presents a number of questions that the Central Bank wishes to discuss with regulated firms and other relevant stakeholders.
Submissions are welcome in this regard as this discussion will further inform the Central Bank’s perspective as to whether additional policy or guidance is required on this subject. Further details can be found in the ‘Going Forward’ section of the paper (see below).