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
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