Skip to content

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

A bank negotiating an outsourcing contract for a critical function wants to preserve its ability to manage risk and exit the arrangement in an orderly way. Which contractual provision most directly supports that objective?

Exit and transition assistance terms, including data return and the bank's right to terminate on defined triggers, best support orderly exit and risk management. They let the bank move the critical function to another provider or in-house. The other clauses reduce oversight or recovery rather than enabling a controlled exit.

  1. AA clause allowing the provider to set audit timing at its own discretion
  2. BA clause capping the provider's liability at one month's fees in all circumstances
  3. CExit and transition assistance terms, with data return and the bank's termination rights on defined triggersCorrect
  4. DA clause permitting unrestricted subcontracting by the provider without notice

Explanation

Guidance expects contracts for material outsourcing to include termination rights, exit and transition support, and data return so the bank can bring the activity in-house or move it to another provider. The audit-discretion and unrestricted-subcontracting clauses weaken oversight. A blanket liability cap limits recovery but does not support orderly exit.

Did you get it right without looking?

One question tells you little. A timed set on Guidance on Managing Outsourcing Risk shows your real accuracy, how long you take and where you lose marks.

Practise Guidance on Managing Outsourcing RiskFree diagnostic mock

More Guidance on Managing Outsourcing Risk questions