FSB Consults on Issues on Outsourcing and Third-Party Relationships
FSB published a discussion paper on the regulatory and supervisory issues related to outsourcing and third-party relationships. The discussion paper presents an overview of the evolving regulatory and supervisory landscape for outsourcing and third-party risk management in FSB member jurisdictions. It briefly describes the existing regulatory and supervisory approaches and outlines the common regulatory and supervisory challenges associated with outsourcing and third-party risk management, also identifying key issues for further exploration. FSB is seeking comments, by January 08, 2021, on the questions set out in the discussion paper.
In January-March 2020, the FSB Standing Committee on Supervisory and Regulatory Cooperation (SRC) conducted a survey among member jurisdictions on the existing regulatory and supervisory landscape for outsourcing and third-party risk management, including cross-border supervisory challenges and potential financial stability issues. The discussion paper provides a high-level overview of the existing landscape based on the survey findings as well as the preliminary observations from authorities’ and financial institutions’ recent responses to the COVID-19 pandemic. The paper intends to facilitate and inform discussions among authorities, financial institutions, and third parties on how to address the issues identified in the SRC survey and the 2019 FSB report on third-party dependencies in cloud services. The discussion has highlighted the following key challenges faced by supervisory authorities:
- Practical limitations on the ability to ensure that financial institutions appropriately manage the risks in their outsourcing and third-party agreements (including risks in the third party’s wider supply chain)
- Limitations on their ability to effectively oversee supervised financial institutions’ outsourcing and third-party arrangements in a cross-border context
- Challenges in identifying, monitoring, and managing potential systemic risks related to financial institutions’ use of outsourcing and third-party arrangements, particularly, due to concentration in the provision of third-party services and lack of relevant information
The high pace of evolution of third-party relationships, including where and how financial institutions use third-party providers, can make understanding and managing these risks more complex. In the paper, FSB highlights that additional analysis may be considered to better understand the risks posed by the changing landscape of outsourcing and third-party relationships. The additional analysis may also be considered to better understand whether the existing approaches allow financial institutions to capture the benefits of outsourcing and third-party relationships while sufficiently addressing the risks that these relationships may pose to financial institutions. The discussion paper emphasizes that effective cross-border cooperation and dialog among supervisory authorities as well as the effective application of existing standards and other emerging practices are important to address these challenges and risks.
Related Links
Comment Due Date: January 08, 2021
Keywords: International, Banking, Insurance, Securities, COVID-19, Third-Party Risk, Systemic Risk, Outsourcing Risk, Cloud Computing, FSB
Featured Experts
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Previous Article
EBA Reminds Firms to Execute Contingency Plans for Brexit TransitionRelated Articles
ESAs Issue Multiple Regulatory Updates for Financial Sector Entities
The three European Supervisory Authorities (ESAs) issued a letter to inform about delay in the Sustainable Finance Disclosure Regulation (SFDR) mandate, along with a Call for Evidence on greenwashing practices.
ISSB Makes Announcements at COP27; IASB to Propose IFRS 9 Amendments
The International Sustainability Standards Board (ISSB) of the IFRS Foundations made several announcements at COP27 and with respect to its work on the sustainability standards.
IOSCO Prioritizes Green Disclosures, Greenwashing, and Carbon Markets
The International Organization for Securities Commissions (IOSCO), at COP27, outlined the regulatory priorities for sustainability disclosures, mitigation of greenwashing, and promotion of integrity in carbon markets.
EBA Finalizes Methodology for Stress Tests, Issues Other Updates
The European Banking Authority (EBA) issued a statement in the context of COP27, clarified the operationalization of intermediate EU parent undertakings (IPUs) of third-country groups
OSFI Sets Out Work Priorities and Reporting Updates for Banks
The Office of the Superintendent of Financial Institutions (OSFI) published an annual report on its activities, a report on forward-looking work.
APRA Finalizes Changes to Capital Framework, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) finalized amendments to the capital framework, announced a review of the prudential framework for groups.
BIS Hub and Central Banks Conduct CBDC and DeFI Pilots
The Bank for International Settlements (BIS) Innovation Hubs and several central banks are working together on various central bank digital currency (CBDC) pilots.
ECB Sets Deadline for Banks to Meet Its Climate Risk Expectations
The European Central Bank (ECB) published the results of its thematic review, which shows that banks are still far from adequately managing climate and environmental risks.
ESAs, ECB, & EC Issue Multiple Regulatory Updates for Financial Sector
Among its recent publications, the European Banking Authority (EBA) published the final standards and guidelines on interest rate risk arising from non-trading book activities (IRRBB)
EC Adopts Final Rules Under CRR, BRRD, and Crowdfunding Regulation
The European Commission (EC) recently adopted regulations with respect to the calculation of own funds requirements for market risk, the prudential treatment of global systemically important institutions (G-SIIs)
