FRM Part II · FRM Exam Part II · Guidance on Managing Outsourcing Risk
A bank has outsourced its payment processing to a third-party service provider. Which of the following best describes the board's and senior management's responsibility for this arrangement under sound outsourcing risk guidance?
The bank keeps ultimate responsibility for an outsourced activity, even after signing a contract. Contract penalties do not transfer accountability to customers or supervisors, so the bank must continuously monitor the provider's performance, controls and risk exposures.
- AThe bank retains ultimate responsibility for the outsourced activity and must monitor the provider's performance on an ongoing basisCorrect
- BResponsibility transfers to the service provider once a legally binding contract is signed
- CResponsibility is shared equally with the provider, so monitoring is optional if the contract has penalty clauses
- DThe bank is responsible only for monitoring the provider's financial statements
Explanation
Outsourcing does not relieve the bank of accountability to customers and supervisors. Ongoing monitoring of performance, controls and risks remains the bank's duty. Contract terms cannot transfer this responsibility, so the other options are wrong.
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