Central Bank of Ireland proposed the cross-industry guidance on management of outsourcing risks. The guidance is intended to assist regulated firms in developing their outsourcing risk management frameworks to effectively, identify, monitor, and manage the outsourcing risks. The guidance reminds regulated firms about their statutory obligations on compliance with the existing and future legislation, regulations and about the guidelines relevant to their sector, in respect of the management of outsourcing risk. The consultation period ends on July 26, 2021, post which the Central Bank plans to publish the final guidance in 2021.
The guidance reaffirms the adoption of the EBA guidelines on outsourcing arrangements and the EIOPA and ESMA guidelines for outsourcing to cloud service providers, for regulated firms that are within the scope of those guidelines. The central bank deems this guidance relevant to any regulated firm that utilizes outsourcing as part of its business model. The guidance applies equally to intragroup outsourcing arrangements as it does to arrangements with third-party outsourced service providers. Instead of superseding the existing sectoral legislation, regulations, and guidance on outsourcing, the proposed guidance supports and complements these supervisory tools by setting out aspects of good practice for the effective management of outsourcing risk in all its forms. The proposed guidance:
- Sets out expectations on the governance and management of outsourcing risk, along with the details of the relevant responsibilities of boards and senior management; it also outlines the expectation for regulated firms to consider their strategy and risk appetite in relation to outsourcing and details the elements that should be incorporated in the outsourcing policy of a regulated firm.
- Highlights the importance of a comprehensive assessment of outsourcing risks and details factors to be considered when assessing and designing controls to manage and/or mitigate a number of key outsourcing risks.
- Outlines expectations on the management of outsourcing risks in the area of Information and Communications Technology (ICT), including risks arising when outsourcing to the cloud, in addition to presenting the broader measures to be adopted for all critical outsourcing arrangements.
- Conveys the expectation that regulated firms should undertake appropriate due diligence of outsourced service providers before entering into an outsourcing arrangement and at appropriate intervals during the lifecycle of the arrangement.
- Emphasizes the importance of regular, comprehensive monitoring of the delivery of the service or function that has been outsourced and the appropriateness of the framework governing and supporting the arrangements.
- Presents factors that regulated firms should consider when determining whether an outsourced function should be deemed critical or important
- Specifies the requirements for regulated firms to establish and maintain a register (database) of all outsourcing arrangements and the information (data elements) that such registers should contain; this includes proposal to establish an online regulatory return of the outsourcing registers for submission by regulated firms on a cyclical basis, commencing in January 2022.
Comment Due Date: July 26, 2021
Keywords: Europe, Ireland, Banking, Insurance, Securities, Outsourcing Risk, Governance, Outsourcing Arrangements, Cloud Service Providers, ESAs, Central Bank of Ireland
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