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

A risk manager reviews why the bank's outsourcing has grown over five years. Which of the following is a commonly cited driver of outsourcing, and also a reason that it can increase risk if poorly managed?

Access to specialised expertise and technology is a typical driver of outsourcing, alongside cost and scalability. If it leads the institution to depend on a few providers, it creates concentration and dependence risk, so it must be managed rather than assumed to remove risk.

  1. AAccess to specialised expertise and technology, which can create dependence on a few providersCorrect
  2. BElimination of regulatory reporting duties, which weakens supervisory oversight
  3. CGuaranteed removal of operational risk, which leads to lower monitoring
  4. DAutomatic transfer of legal liability to the provider, which reduces contract review

Explanation

Cost savings, specialised expertise, scalability and technology access are typical drivers. Reliance on a small number of providers creates concentration and dependence risk. The other options assume risk or responsibility is transferred, which the guidance rejects.

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