The Board of the International Organization of Securities Commissions (IOSCO) published a final report updating the outsourcing principles for regulated entities that outsource tasks to service providers, including the cloud service provider. The updated principles are based on the earlier outsourcing principles for market intermediaries and for markets, but their application has been expanded to include trading venues, intermediaries, market participants acting on a proprietary basis, and credit rating agencies.
The revised outsourcing principles comprise a set of fundamental precepts and seven principles. The fundamental precepts cover issues such as the definition of outsourcing, the assessment of materiality and criticality, affiliates, sub-outsourcing, and outsourcing on a cross-border basis. The seven principles set out expectations for regulated entities that outsource tasks, along with the guidance for implementation. One key principles specifies that a regulated entity should take appropriate steps to ensure that service providers protect confidential information and data related to the regulated entity and its clients, from intentional or inadvertent unauthorized disclosure to third parties. In general, the principles address the following factors:
- Due diligence in the selection and monitoring of a service provider and its performance
- The contract with a service provider
- Information security, business resilience, continuity and disaster recovery
- Confidentiality Issues
- Concentration of outsourcing arrangements
- Access to data, premises, personnel, and associated rights of inspection
- Termination of outsourcing arrangements
The report also briefly addresses the impact of COVID-19 on outsourcing and operational resilience and includes an Annex that describes how outsourcing integrates with cloud computing and how credit rating agencies use and incorporate outsourcing and cloud computing in their organizational strategies and structures. It covers, among others, the three cloud service models—namely, Infrastructure as a Service, Platform as a Service, and Software as a Service. The report notes that the basic approaches to outsourcing and cloud computing are not limited to the credit rating agency sector, rather they span the financial services industry.
Keywords: International, Banking, Securities, Outsourcing Principles, Cloud Service Providers, PAAS, SAAS, Operational Resilience, Cyber Risk, Operational Resilience, Cyber Risk, Operational Risk, Regtech, IOSCO
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