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

A bank's board is reviewing its approach to service provider risk. Which action is most consistent with the board's role, as opposed to senior management's day-to-day role, under the guidance?

The board's role is to approve a risk-based policy governing the service provider risk management program and to oversee that management implements it. Negotiating contracts, daily monitoring and technical testing are delegated to senior management and operational staff rather than being board-level tasks.

  1. ANegotiating the pricing and service-level terms of each individual contract
  2. BPerforming the daily monitoring of the provider's service performance reports
  3. CApproving a risk-based policy that governs the bank's service provider risk management programCorrect
  4. DConducting the technical onsite testing of the provider's backup systems

Explanation

The board sets strategy and approves risk-based policies governing the outsourcing program, and ensures senior management implements them. Contract negotiation, daily monitoring and technical testing are operational tasks delegated to management and staff. Option A is wrong because contract terms are management's responsibility.

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