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

A bank plans to outsource its payment-processing operations to a third-party provider. Which statement best describes the bank's responsibility for the outsourced activity once the contract is signed?

The bank's board and senior management remain ultimately responsible for the outsourced activity. Outsourcing moves the performance of the task to the provider, not accountability. Contract liability clauses may allocate financial losses, but regulators still hold the bank responsible for managing the risks and for compliance.

  1. AThe bank's board and senior management remain ultimately responsible for the outsourced activity and its risksCorrect
  2. BResponsibility transfers to the service provider as specified in the contract's liability clause
  3. CResponsibility is shared equally between the bank and the provider, with the regulator arbitrating disputes
  4. DThe bank is responsible only for risks arising before the date the service is transferred

Explanation

Under supervisory guidance on outsourcing, a firm can transfer the performance of an activity but not accountability for it. The board and senior management stay responsible for risk management, compliance and customer outcomes. Contractual liability clauses allocate financial recovery between the parties but do not remove regulatory accountability.

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