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

A regional bank plans to outsource its loan-servicing platform to a third-party provider. According to the supervisory guidance on managing outsourcing risk, which statement best describes the bank's responsibility for the outsourced activity?

The bank's board and senior management remain fully responsible for an outsourced activity. Signing a contract does not transfer accountability to the provider, so the bank must oversee and control the risks as if it performed the activity internally, regardless of whether the provider is affiliated.

  1. AResponsibility for the activity transfers to the service provider once a contract is signed
  2. BThe bank's board and senior management remain responsible for the outsourced activity as if it were performed in-houseCorrect
  3. CResponsibility is shared equally with the provider, and regulators will assign the bank only half of any penalty
  4. DResponsibility rests with the bank only when the provider is an affiliate of the bank

Explanation

Outsourcing the activity does not outsource accountability. The board and senior management must oversee the provider and manage the risks as they would for an internal activity. The other options wrongly suggest transfer or partial transfer of accountability.

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