18 January 2006
RBNZ releases finalised outsourcing policy for banks
The Reserve Bank today published its finalised policy on the requirements which will apply to large New Zealand banks
that have entered into outsourcing arrangements. The final policy follows consideration of comments on a draft policy
issued in October 2005.
Reserve Bank Deputy Governor Adrian Orr said: "While outsourcing of banks' business functions is increasingly common and
often a sensible business practice, it can expose banks and the financial system to new or increased risks that must be
managed appropriately. Under the Reserve Bank's policy, outsourcing is permitted so long as it does not undermine a
large bank's ability to continue to provide core liquidity, payment and transaction services both in good times and
under stress."
"Failures of banks and of service providers to banks are low-probability events, but they can have a potentially high
and immediate impact across the economy. The outsourcing policy provides safeguards to the stability of the New Zealand
financial system against the possibility of such occurrences.
"Consistent with our earlier proposals, the policy focuses on ensuring that the boards of large New Zealand banks
maintain the legal and practical ability to control outsourced functions so that the banks can continue to provide
critical services in a crisis situation. The policy also requires the boards to exercise meaningful control and
oversight over the bank's chief executive and staff."
Mr Orr commented that "the policy maintains our approach of focusing on the outcomes we require of banks, rather than
being prescriptive about banks' systems. This approach allows banks more flexibility in meeting the requirements and
means that the policy will not involve excessive costs for them. The emphasis also remains on bank directors managing
outsourcing risk as part of their normal business processes".
The Reserve Bank will now work on implementation of the policy with those banks that are subject to it. Implementation
will take into account each bank's individual circumstances and investment cycles.
The final policy and associated documentation is available at http://www.rbnz.govt.nz/news/2006/2358281.html
ENDS