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

Which reporting arrangement best supports effective board oversight of a bank's material outsourcing arrangements?

The best arrangement is regular management reporting to the board covering SLA performance, incidents, risk assessments and compliance issues, with clear escalation of breaches. This gives the board timely, risk-focused information, unlike ad hoc failure reports, contract-status confirmations or cost-only reporting.

  1. AAd hoc reports prepared by the service provider only when a major failure occurs
  2. BA periodic report from management that covers performance against SLAs, incidents, risk assessments and compliance issues, with escalation of breachesCorrect
  3. CAnnual confirmation from procurement that all contracts are in force
  4. DReports restricted to financial cost savings achieved through outsourcing

Explanation

Board oversight needs regular, comprehensive management reporting on performance, incidents, risk and compliance, with escalation paths. Reports only after failure, or covering only contracts or cost, miss risk information.

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