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The need for outsourcing agreements

In our previous edition on Outsourcing and Third Party Risk Management, we provided an overview of the key milestones behind the new expectations.

Overview of requirements

One of the key requirements is to put in place robust agreements with outsourcing or other material third-party providers.

When outsourcing or subcontracting a material process or function, firms are effectively handing over their business function. They need to obtain contractual guarantees of service levels and mitigate any risk to their business in case the third-party arrangement is not fit for purpose and the business suffers as a result. Similarly, the third party would be accepting responsibility for the business function, and potentially employees of the business, so the provider needs to know exactly what is expected of them, what they are taking on and the pricing of the outsourced or subcontracted services.

Firms need to have a good contract in place so that the provider complies not only with their business requirements but also with the regulators’ requirements. Regardless of materiality, firms must ensure that outsourcing agreements do not limit the regulators’ ability to effectively supervise the firms, including their outsourced and subcontracted activities.

Have you read our responses behind other key questions?  You can view them by clicking on the links to the pages below:

Structure and contents of the agreements

Considerations when negotiating agreements

Failure to meet requirements – case study

When do firms need to meet these requirements by?