Skip to content

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

A mid-sized asset manager is deciding whether to outsource its fund accounting function. Which of the following is the most typical strategic driver for outsourcing such a non-core, process-intensive activity, as opposed to a risk that results from doing so?

The typical driver is access to specialised expertise and economies of scale, letting the firm concentrate on core activities. Outsourcing does not remove operational risk, tends to reduce direct control, and can raise supplier concentration, so those options are not drivers.

  1. AGaining access to specialised expertise and economies of scale while focusing on core activitiesCorrect
  2. BEliminating all operational risk associated with the activity
  3. CReducing concentration risk among suppliers
  4. DIncreasing the firm's direct control over data and processing

Explanation

Common drivers are cost efficiency, scale, specialist skills, and focus on core business. Outsourcing does not eliminate operational risk; it changes it into third-party risk. It can raise concentration risk and usually reduces direct control, so those options describe consequences or are wrong.

Did you get it right without looking?

One question tells you little. A timed set on Case Study: Third-party Risk Management shows your real accuracy, how long you take and where you lose marks.

Practise Case Study: Third-party Risk ManagementFree diagnostic mock

More Case Study: Third-party Risk Management questions