Answers to Questions Regarding Banking and Security Issues

Question 1

With an eye to cut the costs and to focus on the basic services banks are repeatedly outsourcing their final financial service work to the third parties, which are at times located outside of the country, to execute operations on a regular basis that would usually be carried out by the bank itself.

Any financial institution outsourcing its activities does bear certain risks, which must be alleviated by a regulatory body such as the central bank. The central bank is the uppermost monetary institution, which has been specially given an official authority to perform control across the banking system of the country.

Regulating bodies can mitigate those risks by taking steps to:

• Create broad and perspicuous outsourcing policies;

• Introduce effectual programs for risk management;

• Compel emergency planning by the outsourcing firm;

• Arrange apt outsourcing contracts;

• Examine service provider’s financial and infrastructure resources.

Regulators can reduce risks by including the evaluation of outsourcing to their assessment of individual banks to oversee systemic risk and by monitoring concentration risk in service providers.

The speedy elaboration of IT advancement, along with rising dependence on outdoor service providers have the likelihood of bringing about systemic issues if not properly controlled by a union of market and regulatory authorities.

Moreover, the regulators are well positioned to recognize threats of failure. They can prioritize them in an agenda mapping possible weaknesses and sketching the sequence of cause and effect within the system.

In addition, central bank should get the financial institutions notify them of any projects aiming outsourcing. After having examined the situation...

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Risk management Guidance. [Online] Available at: http://www.occ.gov/news-issuances/bulletins/2013/bulletin-2013-29.html [Accessed 7 March 2014]

Financial Services Guidance Note Outsourcing (2005) http://www.fsc.gi/download/adobe/GuidanceNote-Outsourcing.pdf [Accessed 1 March 2014]

Official site of Reserve Bank of India (2006) http://www.rbi.org.in/commonman/english/scripts/Notification.aspx?Id=40 [Accessed 7 March 2014]

Bank Agents: Risk Management, Mitigation, and Supervision (2011)

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