Guidelines for Managing Risk in Outsourcing of Financial Services by Co-operative Banks

Last updated: 03 July 2021

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The Reserve Bank of India has issued new guidelines for co-operative banks on managing the risks associated with outsourcing financial services. These guidelines aim to ensure that outsourcing arrangements do not compromise the bank's ability to fulfil its obligations to customers and regulators. Co-operative banks are required to conduct a self-assessment of their current outsourcing arrangements and bring them into compliance with these new rules within six months of the circular's issue date.

RBI/2021-22/64 DOR.ORG.REC.27/21.04.158/2021-22 June 28, 2021 The Chief Executive Officer All Co-operative Banks Madam / Dear Sir, Guidelines for Managing Risk in Outsourcing of Financial Services by Co-operative Banks It is observed that the co-operative banks are increasingly using outsourcing as a means for reducing costs as well as for availing specialist expertise, where these are not available internally. 2. While it is entirely the banks prerogative to take a view on t

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FAQ :

The guidelines are designed to help co-operative banks manage the various risks that arise from outsourcing financial services, ensuring they maintain sound risk management practices and effective oversight.

Outsourcing is defined as the use of a third party to perform activities on a continuing basis that would normally be undertaken by the co-operative bank itself, now or in the future.

Co-operative banks cannot outsource core management functions, including policy formulation, internal audit, compliance, KYC norms, credit sanction, and the management of investment portfolios.

Co-operative banks are advised to conduct a self-assessment of their existing outsourcing arrangements and bring them in line with these guidelines within a period of six months from the date of issue of this circular.

The co-operative bank, its Board, and CEO, along with the management, hold the ultimate responsibility for all outsourced activities and the actions of their service providers.

Co-operative banks do not require prior approval from RBI/NABARD for outsourcing, but such arrangements will be subject to on-site/off-site monitoring and inspection by these authorities.

Notification No : RBI/2021-22/64 DOR.ORG.REC.27/21.04.158/2021-22
Source : https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12123&Mode=0

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