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

A regional bank transfers its payment-processing operations to an external provider under a multi-year contract. Which statement best describes the bank's accountability for this activity after the transfer?

The bank keeps ultimate responsibility for the outsourced payment processing. Outsourcing transfers the performance of the activity, not accountability, so the board and senior management must still oversee risks and ensure regulatory compliance as though the bank performed the work in-house.

  1. AThe bank keeps ultimate responsibility for the outsourced activity and its compliance obligations, as if it performed the work itselfCorrect
  2. BResponsibility moves to the service provider once the contract is signed, so the bank only needs to monitor invoices
  3. CResponsibility is shared equally with the provider, and the board is relieved of oversight duties
  4. DResponsibility moves to the provider for operational failures but stays with the bank for regulatory fines only

Explanation

Under supervisory outsourcing guidance, a firm cannot outsource its accountability. The board and senior management remain responsible for risks and compliance of outsourced activities. The other options wrongly imply that responsibility transfers fully or partly, or that board oversight ends.

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