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Financial Institutions Must Ensure Effective Risk Management in Outsourcing Arrangements
Introduction
In an effort to promote transparency and accountability in financial transactions, the State Bank of Pakistan (SBP) has issued guidelines on a framework for risk management in outsourcing arrangements by financial institutions.
Key Requirements
- Country Risks: Financial institutions must address country risks and potential obstacles in exercising oversight and management of outsourcing arrangements made with service providers outside Pakistan.
- Termination Rights: Financial institutions must have the right to terminate an outsourcing agreement in the event of default or under circumstances such as change in ownership, insolvency, receivership, breach of security or confidentiality, or demonstrable deterioration in the service provider’s ability to perform contracted services.
Performance Standards
- Clear Expectations: Financial institutions must set out clear expectations for service providers and closely monitor their compliance with key performance standards.
- Availability and timeliness of services
- Confidentiality and integrity of data
- Change control
- Security standards compliance
- Business continuity compliance
- Help desk support
Risk Management Responsibilities
- Sufficient Resources: Financial institutions must devote sufficient resources to manage and monitor outsourcing relationships, ensuring that personnel responsible for monitoring activities have the necessary expertise to assess risks and impacts.
- Risk Assessments: Financial institutions must periodically assess risks in service provider relationships and ensure that effective mechanisms are in place to monitor outsourced activities.
Contingency Planning
- Interdependency Risk: Financial institutions must evaluate and manage interdependency risk arising from material outsourcing arrangements.
- Business Continuity Plans: They must determine whether service providers have satisfactory business continuity plans in place and require them to notify any substantial changes or adverse developments that may impact services provided to the institution.
Implementation Timeline
The guidelines come into effect immediately, and financial institutions are expected to comply with the new regulations by [insert date].
Key Highlights
- Financial institutions must address country risks and potential obstacles in exercising oversight and management of outsourcing arrangements.
- They must have the right to terminate an outsourcing agreement in the event of default or under certain circumstances.
- Performance standards must be set out clearly and compliance closely monitored.
- Sufficient resources must be devoted to manage and monitor outsourcing relationships.
- Contingency planning is essential to ensure business continuity.
- Financial institutions must maintain up-to-date records relevant to their outsourcing arrangements.
Contact
For more information, please contact [insert name], Public Relations Officer at the State Bank of Pakistan.