India’s central bank, the Reserve Bank of India (RBI), is preparing to implement new regulations for IT outsourcing in the financial services sector.
The draft rules were released in response to a series of technical issues within India’s banking system and concerns over the increasing reliance on third-party service providers. The RBI notes, “Regulated Entities (REs) have been extensively leveraging Information Technology (IT) and IT-enabled services (ITeS) in their business, products, and services with increasing dependence on third parties. Such reliance on IT/ITeS provided by third parties exposes the REs to various risks.”
Titled “Master Direction on Outsourcing of IT Services,” the draft guidelines address the management of concentration risk related to outsourcing and call for a periodic evaluation of outsourcing arrangements involving foreign IT service providers. The guidelines emphasize that REs should ensure that outsourcing agreements do not undermine their ability to meet customer obligations or hinder effective supervision by regulatory authorities.
Banks have until July 22 to provide their feedback on the proposals.
The RBI is not the only supervisory body addressing concerns around IT outsourcing. In November 2020, the Financial Stability Board, which is responsible for establishing standards for risk management, highlighted the need for a coordinated approach to managing risks associated with third-party IT outsourcing. Similarly, in 2019, the Monetary Authority of Singapore released draft guidelines to enhance oversight of IT outsourcing in the banking sector.