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FRM Part II · FRM Exam Part II · Guidance on Managing Outsourcing Risk

Which of the following best defines outsourcing in the context of supervisory guidance on managing outsourcing risk?

Outsourcing is an arrangement in which a service provider performs, on a continuing basis, an activity the firm would otherwise carry out itself. Simple equipment purchases or sales of business lines do not qualify, and accountability for the activity remains with the firm.

  1. AAn arrangement where a service provider performs an activity that would otherwise be undertaken by the firm itself, on a continuing basisCorrect
  2. BAny one-off purchase of equipment from a vendor
  3. CThe sale of a business line along with all related liabilities to another firm
  4. DThe delegation of regulatory reporting responsibility to the firm's external auditor

Explanation

Outsourcing is an arrangement under which a third party performs, on an ongoing basis, an activity the firm would otherwise perform. One-off equipment purchases are not outsourcing, a business sale transfers ownership, and accountability for reporting cannot be delegated.

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