BNM issued a revised prudential framework on outsourcing arrangements for financial institutions. The framework aims to ensure that risk management practices for outsourcing arrangements remain effective moving forward amid intensification of technological advances in a more globalized and digitized environment. This exposure draft sets out BNM’s proposed regulatory requirements on outsourcing arrangements by financial institutions. Responses on the proposed regulatory requirements must be submitted to BNM by October 27, 2017.
The proposals seek to ensure that financial institutions effectively monitor and control risks arising from outsourcing arrangements and that these arrangements do not hamper BNM’s continued ability to effectively supervise the business of financial institutions, including with respect to recovery and resolution efforts. The proposals in the exposure draft reinforce BNM’s expectations on broader governance and set out improved processes that must be in place to manage outsourcing arrangements. These include enhanced due diligence on service providers and stronger protection of data confidentiality. BNM also expects financial institutions to demonstrate that controls over outsourcing risk management arrangements are operating effectively and remain commensurate with risk profiles of financial institution. The revised requirements also ensure BNM’s continued ability to conduct effective supervisory oversight on financial institutions, including the increasingly complex outsourcing arrangements and concentration to a particular service provider. The policy document comes into effect on January 01, 2018, subject to certain transitional arrangements.
Related Link: Exposure Draft on Outsourcing (PDF)
Comment Due Date: October 27, 2017
Effective Date: January 01, 2018
Keywords: Asia Pacific, Malaysia, Banking, Outsourcing Arrangements, Prudential Framework, Exposure Draft, BNM
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