On 19 November 2018, the Central Bank of Ireland (the "Central Bank") published a discussion paper entitled "Outsourcing - Findings and Issues for Discussion" (the "Discussion Paper") containing a summary of key issues and risks identified by the Central Bank requiring prompt attention by industry. The closing date for submission of responses to questions posed in the Discussion Paper is 18 January 2019.
The findings in the Discussion Paper are underpinned by both the Central Bank's supervisory engagements with industry along with responses received from a recent cross-sectoral outsourcing survey (completed by 18 banks, 82 asset management sector firms, 83 insurers and 2 payment institutions).
In its announcement of the publication of the Discussion Paper, the Central Bank noted it has observed:
a significant increase in reliance on outsourcing of activities (both on an intragroup and third party basis) by regulated financial service providers; serious deficiencies in board awareness and understanding of the extent of reliance on outsourcing; and major weaknesses in relation to risk management controls and processes, and business continuity planning around outsourcing. The Central Bank expects all regulated financial service providers to review their current practices against the Discussion Paper.
Format of the Discussion Paper
The Discussion Paper is split into two sections. Part A deals with the Central Bank's minimum supervisory expectations around the management of outsourcing risks and sets out the Central Bank's findings in relation to current practices in the Irish market, while highlighting particular weaknesses that should be promptly addressed.
The Central Bank has noted that its focus on this area has been borne out of increasing concerns in relation to outsourcing practices and a recognition by the Central Bank of a widespread failure of industry to implement governance, risk management and business continuity practices to the standards expected by the Central Bank.
Part B examines some of the keys risks and evolving trends associated with outsourcing while also identifying ways firms might mitigate these risks.
The Discussion Paper also provides a summary of the issues to be addressed by regulated firms engaging in outsourcing while inviting input and discussion from industry on these points.
The Central Bank has also noted that it will hold an outsourcing industry conference in the first quarter of 2019...