<\/p>\n
Proposed principles aim to address growth of outsourcing, fintech.<\/p>\n
Amid a growing reliance on technology in the banking sector, as well as the rise of fintech, global banking regulators are proposing new principles for managing third-party risk.<\/p>\n
On Tuesday, the Basel Committee on Banking Supervision launched a consultation on a new set of standards for dealing with the management and oversight of banks\u2019 outsourcing arrangements that aims to replace existing principles in this area, which pre-date the global financial crisis.<\/p>\n
In 2005, policymakers adopted principles for supervising banks\u2019 outsourcing activities. Acknowledging that the sector\u2019s dependence on third-party service providers has expanded and evolved since, the Basel committee is proposing draft principles that aim to \u201caddress banks\u2019 increasing reliance on third-party service providers due to the ongoing digitalization and rapid growth in financial technology.\u201d<\/p>\n
These trends have facilitated innovation and increased banks\u2019 dependence on outside providers for a broader range of functions, the group noted.<\/p>\n
The new principles are intended to replace the existing standards on outsourcing to reflect the evolving risks that have accompanied this shift. This includes increased supply chain risk and concentration risk, which represents a growing source of potential systemic risk, as the financial sector becomes increasingly dependent on a handful of tech firms.<\/p>\n
The committee said it \u201cseeks to promote a principles-based approach to improving banks\u2019 operational risk management and operational resilience through effective third-party risk management.\u201d<\/p>\n
The proposed principles are also intended to integrate with the work of other international organizations setting standards in this area, including the International Organization of Securities Commissions\u2019 principles on outsourcing and the Financial Stability Board\u2019s tools for managing and supervising third-party risk.<\/p>\n
\u201cThe principles focus on third-party risk management holistically and are technology-agnostic,\u201d the Basel committee said in a document detailing the proposed principles. \u201cThey aim to promote international engagement, greater collaboration and consistency, with a view to reducing regulatory fragmentation and strengthening the overall operational resilience of the global banking system.\u201d<\/p>\n
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