EBA publishes revised guidelines on outsourcing arrangements: includes business continuity requirements
- Published: Wednesday, 27 February 2019 09:59
The European Banking Authority (EBA) has released revised guidelines on outsourcing arrangements setting out specific provisions for the governance frameworks of all financial institutions within the scope of the EBA's mandate with regard to their outsourcing arrangements and related supervisory expectations and processes. The guidelines include a specific section on requirements for business continuity planning.
The new guidelines, which are consistent with the requirements on outsourcing under the Payments Services Directive (PSD2), the Markets in Financial Instruments Directive (MiFID II) and the European Commission's Delegated Regulation (EU) 2017/565, aim to ensure that institutions can apply a single framework on outsourcing for all their banking, investment and payment activities and services. Such a framework also ensures a level playing field between different types of financial institutions.
In particular, the guidelines clarify that the management body of each financial institution remains responsible for that institution and its activities at all times. To this end, the management body should ensure that sufficient resources are available to appropriately support and ensure the performance of those responsibilities, including overseeing all risks and managing the outsourcing arrangements. Outsourcing must not lead to a situation in which an institution becomes an ‘empty shell' that ‘lacks the substance to remain authorised’.
The guidelines specify which arrangements with third parties are to be considered as outsourcing; and the guidelines differentiate between requirements on critical and important outsourcing arrangements and other outsourcing arrangements. Outsourcing of critical and important functions has a higher impact on the institutions' and payment institutions' risk profile. Hence, the requirements are stricter as compared to the requirements for other less risky outsourcing arrangements.
Finally, competent authorities are required to effectively supervise financial institutions' outsourcing arrangements, including identifying and monitoring risk concentrations at individual service providers and assessing whether or not such concentrations could pose a risk to the stability of the financial system. To identify such risk concentrations, competent authorities should be able to rely on comprehensive documentation on outsourcing arrangements compiled by financial institutions.
When it comes to business continuity planning, the guidelines state that:
- Institutions, in line with the requirements under Article 85(2) of Directive 2013/36/EU and Title VI of the EBA Guidelines on internal governance, and payment institutions should have in place, maintain and periodically test appropriate business continuity plans with regard to outsourced critical or important functions. Institutions and payment institutions within a group or institutional protection scheme may rely on centrally established business continuity plans regarding their outsourced functions.
- Business continuity plans should take into account the possible event that the quality of the provision of the outsourced critical or important function deteriorates to an unacceptable level or fails. Such plans should also take into account the potential impact of the insolvency or other failures of service providers and, where relevant, political risks in the service provider’s jurisdiction.
The EBA Guidelines will enter into force on 30th September 2019 and contain some transitional periods.
Read the guidelines (PDF).