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FRM Part II · FRM Exam Part II · Case Study: Third-party Risk Management

A mid-sized asset manager is considering outsourcing its fund-accounting function. Which motivation is most consistent with a sound strategic rationale for outsourcing, rather than a warning sign of weak governance?

Gaining specialised expertise and economies of scale is a sound rationale. Typical legitimate drivers are cost efficiency, skills and focus on core activities. Avoiding oversight, shifting regulatory responsibility or eliminating internal monitoring are flawed motives because the firm remains accountable and must still oversee the provider.

  1. AAvoiding board-level oversight of a function that has had repeated control failures
  2. BGaining access to specialised expertise and economies of scale that are costly to build in-houseCorrect
  3. CShifting regulatory responsibility for the function to the provider
  4. DReducing the need for any internal monitoring staff after go-live

Explanation

Legitimate drivers include cost efficiency, scale, specialist skills, and focus on core business. The other options reflect misconceptions: responsibility and oversight cannot be outsourced, and monitoring staff are still needed.

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