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FRM Part II · FRM Exam Part II · Case Study: Third-party Risk Management

Following a third-party outage, a bank reviews its exit planning for a critical outsourced service. Which element is most important for the exit plan to be credible?

A credible exit plan needs a tested ability to move the critical service to an alternative provider or in-house within the impact tolerance. Compensation clauses, cheaper renewals or statements that exit is unlikely do not restore service, so they do not make the plan workable.

  1. ATested ability to transfer the service to an alternative provider or bring it in-house within the impact toleranceCorrect
  2. BA clause stating that the vendor will compensate the bank for all losses
  3. CAnnual renewal of the contract at a lower price
  4. DA policy statement that exit is unlikely to be needed

Explanation

A credible exit plan must be workable and tested so the service can move to another provider or in-house within tolerance. Compensation clauses do not restore the service, price renewals are commercial, and a statement of unlikelihood is not a plan.

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