BSS, Dhaka :
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 concerns.
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 from BB.
Banks should ensure that outsourcing activity does not violate anti-money laundering regimes of Bangladesh as well as foreign jurisdictions.
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.
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 concerns.
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 from BB.
Banks should ensure that outsourcing activity does not violate anti-money laundering regimes of Bangladesh as well as foreign jurisdictions.
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.
