EBA GL Outsourcing – one year down, many more to come
We have seen that there is a strong will among the players on the market to work with outsourcing arrangements, and after one year of implementation of the guidelines, we want to reflect briefly and share our thoughts on the following issues:
- How well has the market adapted?
- What challenges have we seen?
Let us begin with a brief summary of the purpose behind this “new” regulation. The purpose was to develop and harmonize the regulations on outsourcing arrangements, partly due to technological advances, and partly due to the increased usage of outsourcing arrangements in order to modernize and make business operations more effective.
The reason why many choose to outsource different operations and functions has to do with digitalization and technological development. There is also a desire to streamline operations, gain access to specialist expertise and in some cases also to increase independence from the operational side of the business.
The implementation efforts during the year came with major challenges for The regulation is detailed and includes extensive demands on processes and management on outsourcing arrangements. Even those who have previously worked actively with processes and routines regarding outsourcing arrangements have had to implement new routines in order to be able to live up to the new regulation.
Many have updated their internal rules, and set up new working methods and processes for outsourcing management, including risk assessment. Many institutions have, however, not yet started their work in practice.
There needs to be routines for follow-up in place, in order to follow up on existing outsourced business functions. Many have not yet entered into any new outsourcing agreements during the year, which means that their new ways of working have not yet been tested, and might be facing possible challenges ahead. The majority have also not yet adapted already existing outsourcing agreements, something that there is still time to do according to the transitional rules and which should therefore be in pipeline for 2021.
The challenges that have emerged during the implementation of the new methods are the assessment and categorization of outsourcing arrangements, i.e. whether a certain type of operation constitutes outsourcing or not, and also whether this is to be regarded as critical or important. It has not always been easy to interpret, and further determine what the outsourcing function should do and how much time this takes. The businesses have also had to work on finding a proper location for the outsourcing function within the organization.
FCG’s view is that that GL Outsourcing impose extensive requirements on and many of the long-term challenges ahead can be significantly alleviated by the use of appropriate system support. A system will help to create overview and control on the outsourcing arrangements and its associated documentation such as risk assessment, due diligence, controls, and maintaining an outsourcing register.