Banks asked to develop outsourcing policy guidelines
Jan 20, 2015, Nirapad News : Bangladesh Bank (BB) has directed
all local and foreign banks operating in Bangladesh to develop
comprehensive policy guidelines for outsourcing some of their
services to ensure proper monitoring of the third-party services.
In a circular on Monday, BB said banks are increasingly
using outsourcing for reducing costs and achieving strategic
aims, but managing the risk factors associated with the third-
party services requires effective policy guidelines.
“Banks can mitigate these risks by taking steps to formulate
a comprehensive and clear outsourcing policies, analyze the
financial and infrastructure resources of the service provider,
negotiate appropriate outsourcing contracts, require contingency
planning by the outsourcing firm, and establish effective risk
management programs, the circular said.
BB directive also drew a detail of the principles of the
guideline to be followed by the banks when using outsourcing at
home or abroad, that would help banks better mitigate the
It said the policy should include, inter-alia,
identification of and the extent to which the relevant activities
are appropriate for outsourcing, criteria for selecting suitable
service providers, delegation of approval authorities for
outsourcing depending on risks and materiality, risk mitigation
measures and governance structure clearly defining roles and
responsibilities of Board of Directors and management to monitor
and review the operations.
The Board or the chief of Bangladesh operations in case of
foreign banks will have the overall responsibility for ensuring
that all ongoing outsourcing decisions taken by the bank, and
activities undertaken by the service providers, are in keeping
with its outsourcing policy.
In addition, the officers responsible to manage a specific
outsourcing arrangement shall also be personally responsible
where personal liability needs to be assigned to individual bank
officials for legal, regulatory or others purposes.
According to the circular, outsourcing means when any
activity of a bank-company or part thereof done by another party
from inside or outside the bank premises, from within Bangladesh
or abroad irrespective of the term used for the relationship.
An outsourcing service provider can be an office of the
banking company situated outside Bangladesh, its holding or
subsidiary company or any of its affiliates in Bangladesh or
abroad, or an unrelated third party in Bangladesh or abroad.
Generally, banks should only outsource the activities which
can be effectively supervised by them and compliance with
applicable legal and regulatory requirements can be ensured.
Banks shall not outsource its core management functions, any
of its risk management functions or core banking operations.
However, in case of foreign banks, parts of its core management
functions or risk management functions can be operated by any of
its offices from outside the country subject to prior approval
Banks should ensure that outsourcing activity does not
violate anti-money laundering regimes of Bangladesh as well as
The minimum wages declared by the government must be taken
into consideration while determining the agreed rate of wages,
salary and compensation to be paid against services provided by
the staff employed by the service provider; and, details of such
rates must be clearly stated in the contract.
Outsourcing relationships should be governed by legally
enforceable written contracts that clearly describe all material
aspects of the outsourcing arrangement, including the rights,
responsibilities and expectations of all parties.
All existing engagements must be made compliant, including
taking approval from Bangladesh Bank where necessary, within
2015, the circular suggested.