Skip to content

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

A risk manager is listing the main drivers behind a bank's growing use of outsourcing. Which of the following is most commonly cited as a driver, and also creates a new risk that must be managed?

Access to specialist expertise and economies of scale is a typical driver of outsourcing, but it increases the bank's dependence on the provider. Outsourcing does not remove operational risk, regulatory scrutiny or continuity planning duties, so new dependency risks must be managed.

  1. AGaining access to specialist expertise and scale economies, which increases dependence on the providerCorrect
  2. BEliminating all operational risk associated with the activity, which removes the need for monitoring
  3. CReducing regulatory scrutiny because the activity is no longer performed on the bank's premises
  4. DRemoving the need for business continuity planning for the transferred activity

Explanation

Common drivers are cost reduction, specialist skills, scale, and flexibility. These benefits create dependence, concentration and loss-of-control risks. Outsourcing does not eliminate operational risk, reduce regulatory scrutiny, or remove continuity planning needs.

Did you get it right without looking?

One question tells you little. A timed set on Guidance on Managing Outsourcing Risk shows your real accuracy, how long you take and where you lose marks.

Practise Guidance on Managing Outsourcing RiskFree diagnostic mock

More Guidance on Managing Outsourcing Risk questions