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FRM Part II · FRM Exam Part II · Risk Mitigation

Which contractual provision best supports a bank's ability to oversee an outsourced critical service on an ongoing basis?

A clause granting the bank and its regulators audit and access rights, together with defined service-level metrics, best supports ongoing oversight. It lets the bank verify controls and measure performance, whereas unnotified subcontracting, minimal reporting or vendor data ownership would weaken control.

  1. AA clause giving the bank and its regulators the right to audit and access the vendor's relevant records and facilities, plus defined service-level metricsCorrect
  2. BA clause allowing the vendor to change subcontractors without notice
  3. CA clause limiting the vendor's reporting to an annual summary
  4. DA clause stating that the vendor owns all data generated in the service

Explanation

Effective oversight requires audit and access rights for the bank and its supervisors and measurable service levels to monitor performance. The other clauses reduce transparency, weaken control over data or allow unmonitored subcontracting.

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