FRM Part II · FRM Exam Part II · Guidance on Managing Outsourcing Risk
The board of a bank asks whether its outsourcing risk appetite is properly reflected in practice. Which of the following would be the strongest evidence that the board is discharging its oversight duty?
The strongest evidence is that the board regularly receives reports on material outsourcing, including concentration, incidents and exit readiness, and actively challenges management. One-off reviews, delegation to junior staff or reliance on vendor marketing do not demonstrate continuing, informed oversight of outsourcing risk.
- ABoard receives periodic reports on material outsourcing arrangements, including concentration, incidents and exit readiness, and challenges management on themCorrect
- BBoard delegates the entire review of outsourcing to a vendor-management clerk
- CBoard reviews the outsourcing policy only when the bank is founded
- DBoard relies on the vendors' marketing material about resilience
Explanation
Effective oversight means regular, meaningful information on material arrangements (concentration, incidents, exit plans) and active challenge. A one-time review or delegation to junior staff does not provide ongoing oversight, and vendor marketing is not independent assurance.
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