PRA published the policy statement PS7/21 that sets out the final supervisory statement SS2/21 on outsourcing and third-party risk management. Firms will be expected to comply with the expectations in SS2/21 by March 31, 2022. PS7/21 also contains feedback to responses to the consultation paper CP30/19, which was published in December 2019 and had set out proposals to modernize the regulatory framework on outsourcing and third-party risk management. PRA revised the policy in SS2/21 based on responses received to CP30/19; the revisions relate to the text on definition of outsourcing, proportionality, governance and record-keeping, pre-outsourcing phase, outsourcing agreements, data security, and business continuity and exit plans.
SS2/21 elaborates on the definition of outsourcing in the PRA Rulebook. It notes that there are arrangements between firms and third parties that fall outside this definition and are, consequently, outside the scope of the existing requirements on outsourcing and some of the detailed expectations in SS2/21. However, these third-party arrangements are still subject to the PRA Fundamental Rules and other PRA requirements and expectations on business continuity, governance, operational resilience, and risk management. SS2/21 clarifies the application of the principle of proportionality to intragroup outsourcing and to "non-significant firms." SS2/21 further sets out the expectations on governance, including under the Senior Managers and Certification Regime (SM&CR), and record keeping. SS2/21 also sets out expectations for firms during the pre-outsourcing phase and aims to:
- Complement the requirements and expectations on operational resilience, as set out in the PRA Rulebook, SS1/21, and statement of policy on operational resilience
- Facilitate greater resilience and adoption of the cloud and other new technologies, as set out in the response of BoE to the "Future of Finance" report
- Implement the EBA guidelines on outsourcing arrangements and clarify how PRA expects banks to approach the EBA Outsourcing Guidelines in the context of its requirements and expectations
- Implement the relevant sections of the EBA guidelines on information and communication technology and security risk management
Outsourcing arrangements entered into on or after March 31, 2021 should meet the expectations in SS2/21 by March 31, 2022. Firms should seek to review and update legacy outsourcing agreements entered into before March 31, 2021 at the first appropriate contractual renewal or revision point to meet the expectations in SS2/21 as soon as possible on or after March 31, 2022. SS7/21 is relevant to banks, building societies, and PRA-designated investment firms, insurance and reinsurance firms, groups in scope of Solvency II, including the Society of Lloyd’s and managing agents, and branches of overseas banks and insurers. Some content in SS2/21 is also relevant to credit unions and non-directive firms. The policy set out in PS7/21 has been designed in the context of the UK having left EU and the transition period having come to an end. Unless otherwise stated, any references to EU or EU-derived legislation refer to the version of the legislation that forms part of the retained EU law. PRA will keep the policy under review to assess whether any changes would be required due to changes in the UK regulatory framework.
Effective Date: March 31, 2022
Keywords: Europe, UK, Banking, Insurance, Proportionality, Operational Resilience, Third-Party Arrangements, Operational Risk, Outsourcing Risk, PRA
Previous ArticleHMT Issues Proposal to Mandate Climate-Related Financial Disclosures
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
Certain regulatory authorities in the US are extending period for completion of the review of certain residential mortgage provisions and for publication of notice disclosing the determination of this review until December 20, 2021.
The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
The European Banking Authority (EBA) published its annual report on asset encumbrance in banking sector.
The European Banking Authority (EBA) published a methodological guide to mystery shopping.
The Australian Prudential Regulation Authority (APRA) released a letter to authorized deposit-taking institutions to provide an update on key policy settings for the capital framework reforms, which will come into effect from January 01, 2023.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
The European Securities and Markets Authority (ESMA) has responded to the IFRS consultation on targeted amendments to the IFRS Foundation constitution to accommodate an International Sustainability Standards Board (ISSB) to set IFRS Sustainability Standards.