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FRM Part II · FRM Exam Part II · Guidance on Managing Outsourcing Risk

A bank has outsourced its payment processing to a third-party provider. Which of the following best describes the bank's responsibility for the outsourced activity after the contract is signed?

The bank keeps ultimate accountability for an outsourced activity and must keep monitoring the provider's performance and risks. Outsourcing moves the execution of the task, not the responsibility, so the board and senior management cannot delegate away oversight once the contract is signed.

  1. AThe bank retains ultimate accountability and must continue to monitor the provider's performance and riskCorrect
  2. BAccountability transfers to the provider once the service level agreement is in force
  3. CAccountability is shared equally with the provider, so the bank need only review annual audit reports
  4. DThe bank's responsibility ends except for regulatory reporting of material incidents

Explanation

Under supervisory guidance on outsourcing, the board and senior management remain ultimately responsible for outsourced activities. Contracts transfer the performance of tasks, not accountability. Options suggesting transfer or minimal oversight conflict with this principle.

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