FRM Part II · FRM Exam Part II · Guidance on Managing Outsourcing Risk
Which element of an outsourcing contract most directly enables a bank's ongoing oversight and its supervisor's ability to review the service provider?
Rights of access, audit and information for both the bank and its regulator most directly support ongoing oversight. They let the bank verify performance and controls independently, whereas fee, liability cap or provider-chosen reporting clauses do not provide that verification ability.
- AA clause fixing the annual fee
- BRights of access, audit and information for the bank and its regulatorCorrect
- CA clause limiting the provider's liability to one month of fees
- DA clause allowing the provider to choose its own reporting format
Explanation
Access, audit and information rights let the bank and supervisors verify performance and controls. Fee and liability clauses are commercial terms, and provider-chosen reporting weakens independent oversight.
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