Banks need prior approval for foreign outsourcing of work

Any outsourcing outside Bangladesh will require prior approval of  Bangladesh Bank under Section 12 of the Bank Company Ain, 1991 regardless of the fact that the specified functions is conducted by or data is provided to an unrelated third party or any office of the banking company, its holding or subsidiary company or any of its affiliates.
However, sharing of structured information of limited scope for management oversight of foreign banks shall not require such approval, the Bangladesh Bank said in its guidelines on outsourcing arrangements issued on Monday.
When engaging service providers in a foreign country, banks should take into account and closely monitor government policies and political, social, economic and legal conditions in those countries, during the due diligence process and on a continuous basis after employing the service provider, the guidelines say.Banking institutions throughout the world are increasingly using ‘outsourcing’ as a means of both reducing costs and achieving strategic aims. When these third-party service providers conduct significant parts of the bank’s regulated and unregulated activities, it may impact on the ability of banks to manage their risks and monitor their compliance with regulatory requirements.
Banks can mitigate these risks by taking steps to: draw up 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.
This Circular spells out in detail a set of guiding principles, to be followed by banks in Bangladesh when using outsourcing at home or abroad, that would help banks better mitigate the concerns.
A bank seeking to outsource activities shall develop a comprehensive policy duly approved by its Board of Directors [Chief of Bangladesh operations in case of foreign banks]. 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 [Chief of Bangladesh operations in case of foreign banks] has 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.
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 fulfilling set conditions, says the circular issued from the Banking Regulation and Policy Department Bangladesh Bank. – Staff Reporter