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

A bank outsources its payment processing to a single vendor. The board asks which document should primarily define how the bank would move the service in-house or to another provider if the vendor fails or the relationship ends. Which is the most appropriate?

A documented exit strategy and transition plan is the right tool. Supervisory outsourcing guidance expects banks to plan in advance how to move a critical service to another provider or in-house if the vendor fails or the contract ends, so the activity continues without disruption.

  1. AA documented exit strategy and transition planCorrect
  2. BThe vendor's marketing brochure on service levels
  3. CThe bank's annual financial statements
  4. DThe vendor's own internal audit report

Explanation

Sound outsourcing guidance expects the bank to maintain an exit strategy with a transition plan covering termination, stressed exit and migration of the service. The other documents do not set out how the bank would transfer the activity.

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