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

A bank is assessing an exit from a critical outsourced service. Which finding would most strongly indicate that the exit strategy is not credible?

An exit strategy is not credible when it exists only on paper: no alternative provider is identified, data is locked in proprietary formats, and the transition has never been tested. Such gaps mean the bank could not actually execute an orderly exit under stress.

  1. AThe contract contains termination rights and data return clauses
  2. BThe bank holds documentation of the service's processes and data formats
  3. CExit has been described in policy but no alternative provider has been identified, data is in a proprietary format, and the transition has never been testedCorrect
  4. DThe bank reviews the provider's financial condition annually

Explanation

A credible exit requires feasible alternatives, portable data and tested transition steps. Having only a policy statement, no alternative provider, proprietary data formats and no testing means exit could not be executed in practice. The other options are supportive controls.

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