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

A bank's exit plan for a critical outsourced service assumes it can switch to an alternative provider within 30 days. Due diligence shows the data is held in a proprietary format that only the current vendor can extract, and the contract has no data return clause. Which is the best action?

The bank should renegotiate for data return in a usable format and termination assistance, then reassess the exit plan. A 30-day switch is unrealistic if only the vendor can extract the data, and goodwill or de-listing the service does not remove the dependency.

  1. ARenegotiate to secure data return in a usable format and assistance on termination, and update the exit plan's feasibilityCorrect
  2. BLeave the plan unchanged because 30 days is an acceptable target
  3. CRemove the service from the register of critical outsourcing
  4. DRely on the vendor's goodwill at the time of exit

Explanation

An exit plan is credible only if data and services can actually be transferred. Contract terms for data access, return and termination assistance address the obstacle. Keeping the plan unchanged or relying on goodwill leaves an unrealistic assumption, and de-listing hides the risk.

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