FRM Part II · FRM Exam Part II · Risk Mitigation
A bank outsources its customer call centre to a vendor under a contract with service-level agreements. After a vendor failure, the bank's customers suffer service outages. Which statement best reflects the bank's position regarding risk mitigation through outsourcing?
The bank keeps ultimate responsibility even when a vendor performs the service. Effective mitigation relies on due diligence, ongoing monitoring, exit and contingency plans, and strong contract terms. Penalties cannot eliminate the risk, and outsourcing does not remove the need for business continuity planning.
- AOutsourcing transfers all accountability to the vendor
- BThe bank retains ultimate responsibility and should use due diligence, monitoring, exit plans and contractual provisionsCorrect
- CContractual penalties fully eliminate the operational risk
- DOutsourcing removes the need for business continuity planning
Explanation
Outsourcing can shift execution but not accountability; the bank remains responsible to customers and regulators. Mitigation therefore needs due diligence, ongoing monitoring, exit strategies and contractual terms. Penalties compensate but do not remove the risk, and continuity planning remains necessary.
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