Response to consultation on draft Guidelines on outsourcing

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Q1: Are the guidelines regarding the subject matter, scope, including the application of the guidelines to electronic money institutions and payment institutions, definitions and implementation appropriate and sufficiently clear?

The definition of “function” can be at too high a level to cover outsourcing of components, often technology, required to fulfil the “function”. These components are where much of the innovation, that can bring significant cost reductions to organisations, is naturally taking place. The application of these innovations may be restricted if use of such components leads to entire functions being considered outsourced. A proportionate policy and approach to outsourcing of components, with well-defined contractual and technical interfaces, is needed to be able to incrementally improve the components of functions.

Q2: Are the guidelines regarding Title I appropriate and sufficiently clear?

No additional comments.

Q3: Are the guidelines in Title II and, in particular, the safeguards ensuring that competent authorities are able to effectively supervise activities and services of institutions and payment institutions that require authorisation or registration (i.e. the activities listed in Annex I of Directive 2013/36/EU and the payment services listed in Annex I of Directive (EU) 2366/2015) appropriate and sufficiently clear or should additional safeguards be introduced?

No additional comments.

Q4: Are the guidelines in Section 4 regarding the outsourcing policy appropriate and sufficiently clear?

The outsourcing policy should be proportionate to the scale of the outsourcing, in particular where only components of a function are outsourced to (potentially multiple) “best of breed” providers.

Q5: Are the guidelines in Sections 5-7 of Title III appropriate and sufficiently clear?

Section 5 highlights potential conflicts of interest in outsourcing arrangements, which can particularly be a concern in both the evaluation of outsourcing providers and in the service level monitoring of outsourcing where these functions are undertaken by the internal function that may itself be affected (typically internal IT resources), rather than the business area requiring the service.

Q6: Are the guidelines in Sections 8 regarding the documentation requirements appropriate and sufficiently clear?

No additional comments.

Q7: Are the guidelines in Sections 9.1 regarding the assessment of criticality or importance of functions appropriate and sufficiently clear?

No additional comments.

Q8: Are the guidelines in Section 9.2 regarding the due diligence process appropriate and sufficiently clear?

No additional comments.

Q9: Are the guidelines in Section 9.3 regarding the risk assessment appropriate and sufficiently clear?

The assessment of concentration risk of a dominant provider (section 9.3-59-a-1) is not necessarily easy for an institution to make, since it may require commercially confidential information.
Additionally, where components of a function are delivered by different providers, yet the function is not considered to be fully outsourced (as may happen at present), this may have unseen concentration risks from a dominant provider. Providing a proportionate approach to component outsourcing would enable this risk to be better understood.

Q10: Are the guidelines in Section 10 regarding the contractual phase appropriate and sufficiently clear; do the proposals relating to the exercise of access and audit rights give rise to any potential significant legal or practical challenges for institutions and payment institutions?

No additional comments.

Q11: Are the guidelines in Section 11 regarding the oversight on outsourcing arrangements appropriate and sufficiently clear?

No additional comments.

Q12: Are the guidelines in sections 12 regarding exit strategies appropriate and sufficiently clear?

No additional comments.

Q13: Are the guidelines in Section 13 appropriate and sufficiently clear, Iin particular, are there any ways of limiting the information in the register which institutions and payment institutions are required to provide to competent authorities to make it more proportionate and, relevant? With a view to bring sufficient proportionality, the EBA will consider the supervisory relevance and value of a register covering all outsourcing arrangements within each SREP cycle or at least every 3 years in regard of the operational and administrative burden.

No additional comments.

Q14: Are the guidelines for competent authorities in Title V appropriate and sufficiently clear?

No additional comments.

Q15: Is the template in Annex I appropriate and sufficiently clear?

No additional comments.

Q16: Are the findings and conclusions of the impact assessments appropriate and correct; where you would see additional burden, in particular financial costs, please provide a description of the burden and to the extent possible an estimate of the cost to implement the guidelines, differentiating one-off and ongoing costs and the cost drivers (e.g. human resources, IT, administrative costs, etc.)?

No additional comments.

Name of organisation

Modular FX Services Ltd