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    EIOPA Finalizes Guidelines on Outsourcing to Cloud Service Providers

    February 06, 2020

    EIOPA published the final guidelines on outsourcing to cloud service providers. The guidelines are addressed to national supervisory authorities and inform market participants on how outsourcing provisions in the legislative framework need to be applied in case of outsourcing to cloud service providers. These outsourcing provisions have been set forth in the Solvency II Directive, in the Commission Delegated Regulation 2015/35, and in the EIOPA guidelines on system of governance. The guidelines apply from January 01, 2021 and undertakings should ensure compliance by December 31, 2022.

    The consultation on draft guidelines on outsourcing to cloud service providers ran from July 01 to September 30, 2019 and EIOPA received 28 responses. The stakeholder input helped EIOPA to prepare the final version of these guidelines, which have been streamlined taking into account the principle of proportionality and a risk-based approach to implementation. In the final guidelines, EIOPA mainly focused on outsourcing of critical or important operational functions or activities to cloud service providers. The guidelines cover the following areas:

    • Criteria to distinguish whether cloud services should be considered within the scope of outsourcing
    • Principles and elements of governance of cloud outsourcing, including documentation requirements and list of information part of the notification to supervisory authorities
    • Pre-outsourcing analysis, including a set of criteria to be followed to assess whether a cloud outsourcing arrangement relates to an operational function or activity that is critical or important
    • Principle-based instructions on how the risk assessment of the cloud outsourcing and the due diligence on the cloud service providers should be performed
    • Contractual requirements
    • Management of access and audit rights; security of data and systems; sub-outsourcing of critical or important operational functions or activities; monitoring and oversight of cloud outsourcing; and exit strategies
    • Principle-based instructions for national supervisory authorities on the supervision of cloud outsourcing arrangements including, where applicable, at group level.

    The final report of these guidelines also contains the feedback statement to the consultation, the final impact assessment, and the resolution of non-confidential comments provided by the stakeholders during the consultation. EIOPA developed these guidelines to provide clarification and transparency to market participants and to avoid potential regulatory arbitrage. The guidelines may also foster supervisory convergence regarding the expectations and processes applicable in relation to cloud outsourcing. In accordance with Article 16 of Regulation (EU) No 1094/2010, within two months of the issuance of these guidelines, each competent authority shall confirm if it complies or intends to comply with these guidelines. In case a competent authority does not comply or does not intend to comply, it shall inform EIOPA, stating the reasons for non-compliance.

    The guidelines apply from January 01, 2021 to all cloud outsourcing arrangements entered into or amended on or after this date. Undertakings should review and amend accordingly the existing cloud outsourcing arrangements related to critical or important operational functions or activities with a view to ensuring compliance with these guidelines by December 31, 2022. Where the review of cloud outsourcing arrangements related to critical or important operational functions or activities is not finalized by December 31, 2022, the undertaking should inform its supervisory authority about this, including the measures planned to complete the review or the possible exit strategy. The supervisory authority may agree with the undertaking on an extended timeline for completing that review, where appropriate. The update (where needed) of the undertaking’s policies and internal processes should be done by January 01, 2021 while the documentation requirements for cloud outsourcing arrangements related to critical or important operational functions or activities should be implemented by December 31, 2022.

     

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    Effective Date: January 01, 2021

    Keywords: Europe, EU, Insurance, Reinsurance, Guidelines, Outsourcing, Governance, Fintech, Insurtech, Regulatory Arbitrage, Proportionality, Cloud Outsourcing, Supervisory Convergence, Solvency II, EC, EBA, EIOPA

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