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

Following a vendor failure, a bank wants its exit strategy for a critical outsourced service to be credible. Which element is most important?

The most important element is a tested plan to move the service to another provider or in-house within the impact tolerance, backed by contractual rights to data access and transition support. Liability clauses or capital cannot restore a critical service during a failure.

  1. AA tested plan to transition the service to another provider or bring it in-house within the tolerance, supported by contractual rights to data and cooperationCorrect
  2. BA contract clause stating the vendor is liable for all losses
  3. CAn annual survey asking the vendor whether it intends to remain in business
  4. DHolding additional regulatory capital instead of planning for transition

Explanation

A credible exit strategy is practical and tested, with contractual access to data and transition assistance. Liability clauses do not restore service, vendor surveys give no assurance, and capital does not replace operational continuity.

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