Page 33 - Insurance Times February 2022

Following aspects shall be considered in risk The financial institution should explore the
assessment. service contract for following clauses.
O Implications of performing the activity in-house or O Compliance with applicable laws, regulations and
having outsourced regulatory guidance

O Whether outsourcing is consistent with the business O Rights and responsibilities of each party
strategy and objectives O Statement of Work and Term structure

O Significance of the activity being outsourced in O Structure of Service charges
terms of contribution to revenue, capital allocations
O Term governing use of institution's property,
or importance to overall achievement of strategic equipment
and business objectives
O Support maintenance and customer service
O Benefits or outcome achieved by enabling the
O The ability to sub-contract services
outsourcing function
O Contract timeframes
O Materiality of the benefits or outcomes achieved
in relation to potential risk exposure caused by O Right to audit the activities or infrastructure by
outsourcing independent auditor
O Interrelationship of activity to be outsourced with O The terms of the contract should be clear and
other activities within the organisation unambiguous

O Cost implications of establishing an outsourcing The financial institution should also assess the exposure
arrangement to the legal issues in relation to proposed outsourcing
arrangements and get it vetted by institution's legal and
O Concentration of risk i.e. aggregate exposure to a compliance department before signing the agreement.
particular outsourcing service provider where the
organisation outsources multiple activities to the d. Incentive compensation review:
same outsourcing service provider O Financial institution should also ensure that there
is an effective process to review and approve any
b. Due diligence and selection of service incentive compensation that may be embedded in
provider: service provider agreement.
It is important to exercise due diligence and perform e. Oversight and monitoring of performance:
an objective evaluation of the service provider before It is important to monitor the whether the vendor
engaging into the contract. The extent of the evaluation services fulfil the contractual requirements effectively.
varies depending on the nature, scope, complexity and
It will be a deciding factor for the renewal of
strategic importance of the planned outsourcing
agreement. For this purpose, the financial institutions
arrangement.
should conduct performance evaluation periodically. A
scoring grid can be defined for performance rating.
Following aspects shall be considered in due
diligence and selection. Vendor performance evaluation can be done
O Business Background, reputation and strategy on the basis of following parameters.
O Quality:
O Organisational structure and goals
1) Output of the activity or service of vendor in
O Financial performance and conditions achievement of business goals
O Operations and internal controls enforced 2) Whether the services rendered meet the
O Any material regulatory issues, compliance findings quality standards, timeliness, specifications as
or breaches relating to services to be procured determined in the SLA

O Verification of required licenses and certifications 3) Whether the services are performed in a
competent and professional manner
O Availability of qualified and experienced staff
O Delivery: Delivery of the project or development
c. Contract provisions and considerations: as per SLA or TAT

The Insurance Times, February 2022 33