On 28 May 2020, the International Organization of Securities Commissions (IOSCO) issued a consultation report concerning its ‘Principles for Outsourcing’.
IOSCO prepared this consultation report before the COVID-19 outbreak. On 8 April 2020, the IOSCO board agreed to delay the publication of its reports to allow firms and financial institutions to redirect their resources to focus on the challenges arising from the pandemic. As the initial stages of the crisis pass, the IOSCO board has decided to publish the consultation report now because the COVID-19 pandemic has highlighted the need to ensure resilience in operational activities and to maintain business continuity in situations where both external and often unforeseen shocks impact both firms and their service providers.
The proposed ‘Principles on Outsourcing’ are based on IOSCO´s 2005 ‘Outsourcing Principles for Market Intermediaries and the 2009 Outsourcing Principles for Markets’ but their application has been expanded to include trading venues, market participants acting on a proprietary basis, credit rating agencies and financial market infrastructures. The revised principles comprise a set of fundamental precepts and a set of seven principles. The fundamental precepts cover issues such as the definition of outsourcing, the assessment of materiality and criticality, their application to affiliates, the treatment of sub-contracting and outsourcing on a cross-border basis.
The seven principles cover the following areas:
- Due diligence in the selection and monitoring of a service provider.
- The contract with a service provider.
- Information security, business resilience, continuity and disaster recovery.
- Confidentiality Issues.
- Concentration of outsourcing arrangements.
- Access to data, premises, personnel and associated rights of inspection.
- Termination of outsourcing arrangements.
Each of these principles is supplemented with guidance for implementation.
The deadline for comments on the consultation report is 1 October 2020.