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.
Comment Due Date: January 08, 2021
Keywords: International, Banking, Insurance, Securities, COVID-19, Third-Party Risk, Systemic Risk, Outsourcing Risk, Cloud Computing, FSB
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
Previous ArticleEBA Reminds Firms to Execute Contingency Plans for Brexit Transition
EIOPA submitted—to the European Parliament, the Council of the European Union, and EC—its 2020, fifth, and last annual report on long-term guarantee measures and measures on equity risk.
The BIS Innovation Hub Swiss Centre, SNB, and the financial infrastructure operator SIX announced the successful completion of a joint proof-of-concept (PoC) experiment as part of the Project Helvetia.
EBA published the final draft regulatory technical standards for calculation of own funds requirements for market risk, under the standardized and internal model approaches of the Fundamental Review of the Trading Book (FRTB) framework.
EIOPA published discussion paper on a methodology for the potential inclusion of climate change in the Solvency II (sometimes also written as SII) standard formula when calculating natural catastrophe underwriting risk.
EU published, in the Official Journal of the European Union, corrigenda to the Directive and the Regulation on the prudential requirements and supervision of investment firms.
MAS proposed amendments to certain regulations, notices, and guidelines arising from the Banking (Amendment) Act 2020.
PRA published a statement that explains when to expect further information on the PRA approach to transposing the Capital Requirements Directive (CRD5), including its approach to revisions to the definition of capital for Pillar 2A.
RBNZ launched consultations on the scope of the Insurance Prudential Supervision Act (IPSA) 2010 and on the associated Insurance Solvency Standards.
SRB published the work program for 2021-2023, setting out a roadmap to further operationalize the Single Resolution Fund and to achieve robust resolvability of banks under its remit over the next three years.
EIOPA is consulting on the relevant ratios to be mandatorily disclosed by insurers and reinsurers falling within the scope of the Non-Financial Reporting Directive as well as on the methodologies to build these ratios.