FRM Part II · FRM Exam Part II · Guidance on Managing Outsourcing Risk
Which management reporting practice best supports effective board oversight of material outsourcing arrangements?
The best practice is regular reporting of key risk indicators, SLA breaches, incidents and exit readiness for critical providers, with escalation thresholds. This gives the board timely, risk-focused information rather than cost data, provider self-assessments or reactive regulator-driven reports.
- AAnnual reports listing only the contract values of outsourced services
- BRegular reporting of key risk indicators, SLA breaches, incidents and exit-readiness for critical providers, with escalation thresholdsCorrect
- CReports prepared solely by the service provider about its own performance
- DAd hoc reports issued only after a regulator requests information
Explanation
Effective oversight needs timely, independent and risk-focused information with defined escalation triggers. Contract values or provider self-reporting alone do not show the bank's risk exposure, and reactive reporting is too late.
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