Outsourcing the digital banking activities has grown rapidly in recent years, and forecasts suggest that this trend is likely to continue in the near future.
As many banks still lack the in-house expertise to develop the software, technologies and networks to offer more advanced digital financial services products, most of these institutions are outsourcing their digital activities to specialist third-party service providers. As they become increasingly dependant on external contractors, this practice raises concerns and risks from sharing customer data outside of the bank.
In most jurisdictions, banks and nonbank financial institutions (NBFIs) are governed under a licensing regime.SUPERVISION OF OUTSOURCING OF DIGITAL SERVICES BY BANKS – AFI
Because of the growing trend for banks and NBFIs to outsource their banking activities to third-party service providers, alternative ways of supervising their attendant risks have been developed.
This case study highlights issues that arise from the outsourcing of digital banking activities in the Eastern Europe and Central Asia (EECA) region and outlines their possible solutions. It also shows that although there are challenges associated with outsourcing for financial institutions and regulators, two issues deserve a special attention. The first involves concerns about maintaining the privacy of customers’ financial information and the other involves maintaining the required level of control by supervisory bodies over the risks related to outsourcing.
The document proposes various informative annexes, of which one is comparing the various juridictions around the world that require either a regulatory notifications or an approval of outsourcing transaction, another one named the indirect supervision of 3rd party service providers, and an insightful questionnaire on outsourcing.
The report can be downloaded here
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