In Basel yesterday, the Bank for International Settlements (BIS) announced that The Joint Forum had released a report examining trends in outsourcing in the financial sector.
"Financial services businesses throughout the world are increasingly using third parties to carry out activities that the businesses themselves would normally have undertaken. Industry research and surveys by regulators show financial firms outsourcing significant parts of their regulated and unregulated activities. These outsourcing arrangements are also becoming increasingly complex."
The Report spells out the potential risks that outsourcing activities can pose to financial sector firms, while recognising the substantial benefits that outsourcing can provide. To assist firms and regulators in considering their outsourcing activities, the report presents a set of principles outlining issues that should be taken into account in the process.
The release of the Report follows a consultation process during which banking, insurance and securities firms, regulators and the public have had the opportunity to comment on outsourcing principles outlined in an earlier draft of the report.
The Chairman of the Joint Forum, Gay Huey Evans, said "I am delighted that the Joint Forum is releasing these principles on outsourcing, which take into account all the valuable feedback gathered during the consultation period. The objective of the Joint Forum’s work is to provide a high-level set of principles that constitute a clear and consistent baseline for financial firms engaged in outsourcing. These principles do that by outlining the relevant issues that banking, securities and insurance firms should take into account when establishing their outsourcing arrangements and for their regulators to consider in their assessment of individual firms".
In developing the outsourcing principles, the Joint Forum worked closely with the International Organization of Securities Commissions (IOSCO), which also released a report on outsourcing. The two organisations have collaborated to ensure that their complementary sets of principles are consistent. The Joint Forum’s principles are high-level and aimed collectively at the banking, insurance and securities sectors. They are designed to provide a benchmark against which all financial institutions can gauge their approach to outsourcing. IOSCO’s principles are designed specifically for securities firms.
The Joint Forum was established in 1996 under the aegis of the Basel Committee on Banking Supervision (Basel Committee), the IOSCO, and the International Association of Insurance Supervisors (IAIS) to deal with issues common to the banking, securities and insurance sectors, including the regulation of financial conglomerates. The Joint Forum is comprised of an equal number of senior bank, insurance and securities supervisors representing each supervisory constituency.
The Central Bank of the Bahamas last year published "Minimum Standards for the Outsourcing of Material Functions" as part of its supervisory and regulatory guidelines. The Central Bank is responsible for the licensing, regulation and supervision of banks and trust companies operating in and from within The Bahamas. It has the duty, in collaboration with financial institutions, to promote and maintain high standards of conduct and management in the provision of banking and trust services.
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