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

A bank's board is reviewing its outsourcing framework. Which of the following is most appropriately a board-level responsibility rather than one delegated wholly to operational management?

The board should approve the outsourcing policy and the bank's risk appetite for outsourcing, and make sure these are reviewed regularly. Day-to-day tasks such as negotiating penalty terms, monitoring uptime or onboarding staff are delegated to senior and operational management.

  1. ANegotiating the service-level penalty terms for a single vendor
  2. BApproving the outsourcing risk policy and the bank's risk appetite for outsourcing, and ensuring it is reviewed periodicallyCorrect
  3. CConducting daily monitoring of provider system uptime
  4. DPerforming the technical onboarding of the provider's staff

Explanation

The board sets strategy, approves the outsourcing policy and the level of risk the bank will tolerate, and ensures periodic review. Contract negotiation, uptime monitoring and onboarding are operational tasks for management. The distractors confuse oversight with execution.

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