Joint Forum provides outsourcing guidance to the financial sector

The Joint Forum today released a report entitled Outsourcing in Financial Services for consultation. The report examines the growth in outsourcing in the financial sector and the trends that have accompanied this growth. It also spells out the potential risks that outsourcing activities can pose to financial sector firms, while recognising the substantial benefits that outsourcing can provide. The report presents a set of principles which are designed to assist regulated entities in determining the minimum steps they should take when considering outsourcing activities. These include establishing a coherent policy and specific risk management programmes as well as determining the types of issues that should be considered in contracts. The report also contains some broad principles to help supervisors in taking into account outsourcing in their regular risk reviews of firms.

The Joint Forum has developed its principles in conjunction with the International Organization of Securities Commissions (IOSCO), which is producing a specific set of principles for the securities industry. The Joint Forum's principles are high-level and cross-sectoral, designed to provide a minimum benchmark against which all financial institutions can gauge their approach to outsourcing. The IOSCO principles are complementary and will be more focused and designed specifically for securities firms. The Basel Committee on Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS) will, in time, consider whether additional guidance on outsourcing for the banking and insurance sectors is necessary.

The Joint Forum and the IOSCO Technical Committee will continue working together on their respective reports during the consultation process by sharing comments received and information collected and by consulting with each other in order to avoid inconsistencies in their reports.

The Chairman of the Joint Forum, Gay Huey Evans, said today, “As supervisors, we know that outsourcing of activities is becoming an increasingly important issue for the financial sector. This report should assist those firms in establishing the basic framework for effective management of the risks that may arise as a result of outsourcing.”

She continued, “I am delighted to be able to launch these high-level cross-sectoral principles and would encourage firms to provide comments during the consultation period.”

The Joint Forum was established in 1996 under the aegis of the BCBS, IOSCO and the IAIS to deal with issues common to the banking, securities and insurance sectors.

Gay Huey Evans is Director of Markets in the UK Financial Services Authority.

The report is available on the websites of the Bank for International Settlements ( www.bis.org), IOSCO ( http://www.iosco.org) and the IAIS ( http://www.iaisweb.org).

Comments are invited and should be forwarded by e-mail to baselcommittee@bis.org by 20 September 2004.