BoM Revises Guideline on Outsourcing by Financial Institutions
BoM revised the guideline setting out a broad framework for financial institutions that have entered into outsourcing or are planning to outsource their business activities to service providers. The guideline covers risk management framework in outsourcing, evaluation of risks involved in outsourcing, classification of outsourcing activities, and the use of cloud-based services by financial institutions. This guideline is applicable to all financial institutions falling under the regulatory purview of BoM.
The guideline is based on a three-tier classification of activities: material activities that require authorization, non-material activities that do not require authorization, and core activities that cannot be outsourced. BoM considers cloud-based services operated by service providers as a form of outsourcing and recognizes that financial institutions may have recourse to such services to enhance their operations and service efficiency. The usage of cloud-based services by financial institutions shall be restricted to non-core activities only. Financial institutions are required to take appropriate measures with respect to data access, confidentiality, integrity, sovereignty, recoverability, regulatory compliance, and auditing. They should ensure that the service providers have the capacity to identify and segregate customer data using strong physical or logical controls. As per the guideline, financial institutions are ultimately responsible and accountable for maintaining oversight of cloud-based services and managing the attendant risks of adopting cloud-based services, as in any other form of outsourcing arrangement.
Financial institutions should conduct an assessment of all their existing outsourcing arrangements against this guideline. Where the outsourcing is considered material, financial institutions should inform BoM in writing about the level of compliance with the guideline and report weaknesses, if any. Institutions should also submit a plan and timeframe on how such weaknesses would be rectified. This should be done within four months from when the guideline becomes effective. Financial institutions should annually submit to BoM a Return on Outsourced Activities, containing a list of all material and non-material activities that have been outsourced, in such form and manner prescribed by BoM. This return should be submitted within the next twenty working days of the previous calendar year. The guideline follows the high-level principles on outsourcing in financial services, developed by the Joint Forum comprising BCBS, IOSCO, and IAIS.
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Keywords: Middle East and Africa, Mauritius, Banking, Outsourcing, Cloud Computing, Regtech, BoM
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