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

A mid-sized bank plans to outsource its customer onboarding checks to an external provider. Under the Federal Reserve's guidance on managing outsourcing risk, which statement best describes who remains responsible for the outsourced activity?

The bank's board and senior management remain responsible. Outsourcing an activity does not shift accountability to the provider, so the bank must ensure the activity is performed safely, soundly and in line with laws and regulations, just as if it were done in-house.

  1. AThe service provider, because it performs the activity under contract
  2. BThe bank's board and senior management, who remain responsible for the activity as if the bank performed it itselfCorrect
  3. CThe bank's external auditor, who must certify the provider's controls
  4. DThe bank's regulator, who approves each outsourcing arrangement in advance

Explanation

The guidance states that using a service provider does not diminish the responsibility of the board and senior management to ensure the activity is performed safely and soundly and in compliance with law. Responsibility cannot be transferred by contract. The provider, auditor and regulator do not assume that accountability.

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