EBA Revises Guidelines on Outsourcing Arrangements by Institutions

By Regulatory News

February 25, 2019

EBA revised its guidelines on outsourcing arrangements for financial institutions, including credit institutions and investment firms subject to the Capital Requirements Directive (CRD) as well as payment and electronic money institutions. The guidelines cover information technology outsourcing, including fintech and outsourcing to cloud service providers. The guidelines will enter into force on September 30, 2019.

The guidelines set out specific provisions for the governance frameworks of all financial institutions within the scope of the EBA mandate with regard to their outsourcing arrangements and related supervisory expectations and processes. They clarify that the management body of each financial institution remains responsible for that institution and its activities at all times. Outsourcing must not lead to a situation in which an institution becomes an "empty shell" that lacks the substance to remain authorized. Additionally, the guidelines specify which arrangements with third parties are to be considered as outsourcing. The guidelines differentiate between requirements on critical and important outsourcing arrangements and other outsourcing arrangements. Outsourcing of critical and important functions has a higher impact on the institutions' and payment institutions' risk profile. Hence, the requirements for such functions are stricter compared to the requirements for other less risky outsourcing arrangements.

The guidelines aim to established a harmonized framework aimed to ensure that institutions can apply a single framework on outsourcing for all their banking, investment, and payment activities and services. Such a framework also ensures a level playing field between different types of financial institutions. These guidelines replace the 2006 guidelines on outsourcing while the recommendation on outsourcing to cloud service providers, which was published in December 2017, has been integrated into these guidelines.

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Effective Date: September 30, 2019

Keywords: Europe, EU, Banking, Fintech, Outsourcing Arrangements, Cloud Outsourcing, Proportionality, EBA

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