Third Party Risk Management in the Banking Sector

As the banking sector continues to expand its reliance on third-party services, Third Party Risk Management has become a critical area of focus for financial institutions, including both banks and non-bank entities. RiskImmune offers comprehensive solutions to navigate and comply with the Monetary Authority of Singapore's (MAS) latest regulations and guidelines.

New Regulatory Changes Coming in 2024

Starting on December 11, 2024, new notices and guidelines will take effect, significantly impacting how banks manage their outsourcing and third-party engagements. Notable upcoming regulations include:

• Notice 658 and Notice 1121: Both issued on December 11, 2023, these notices detail the management of outsourced services for banks and merchant banks, focusing on the materiality of services and the safeguarding of customer information.
• Guidelines on Outsourcing (Banks): Set to take effect on December 11, 2024, these guidelines align with the new notices, emphasizing the expectations for risk management in outsourcing arrangements.

Current Guidelines in Effect Until December 2024

The existing Guidelines on Outsourcing, revised on October 5, 2018, are crucial for financial institutions operating under the jurisdiction of the Monetary Authority of Singapore (MAS). These guidelines are scheduled to remain in effect until December 10, 2024. The significance of these guidelines stems from their comprehensive coverage of the MAS’ expectations regarding how financial institutions should govern and manage risks associated with third-party engagements, including outsourced services.

Governance Expectations: The MAS mandates that financial institutions maintain a high standard of governance when dealing with third parties. This involves:

• Board and Senior Management Oversight: The board of directors and senior management are expected to play active roles in overseeing the risk management of third-party services. This includes approving policies related to outsourcing, understanding the associated risks, and ensuring that adequate controls are in place.
• Policy and Framework: Institutions must establish and implement a robust framework for managing outsourcing risks. This framework should cover the life cycle of outsourcing arrangements, from the selection and engagement of third parties to the termination of contracts.

Risk Management Controls: The guidelines specify various risk management controls that should be in place to manage third-party engagements effectively. These include:

• Risk Assessment and Due Diligence: Before entering into any outsourcing arrangement, a thorough risk assessment and due diligence must be conducted. This helps in understanding the potential impact on the institution’s operational resilience, financial performance, and reputation.
• Contractual Safeguards: The guidelines emphasize the importance of having clear and enforceable contracts with third parties. These contracts should outline the rights and obligations of all parties, service level agreements, confidentiality clauses, and mechanisms for dispute resolution.
• Audit and Monitoring: Continuous monitoring of the outsourcing arrangements is required to ensure compliance with set standards and to identify any performance or security issues. Financial institutions should also have the right to audit third parties or conduct reviews through independent auditors.

Regulatory Compliance: Financial institutions are expected to ensure that their outsourcing arrangements comply with all applicable laws and regulations. This includes regulations related to data protection, customer confidentiality, and financial reporting.

Business Continuity Planning: To mitigate risks from third-party failures, institutions must develop and maintain appropriate business continuity plans that include their third-party providers. This ensures that critical functions can continue and recover in the event of significant disruptions.

Exit Strategies: The guidelines also require institutions to have structured exit strategies for terminating outsourcing arrangements without disrupting business operations. This includes understanding the complexities involved in transferring services back in-house or to another third party.

By adhering to these guidelines until they are superseded on December 10, 2024, financial institutions can ensure that their outsourcing practices are secure, resilient, and compliant with MAS expectations, thereby safeguarding their operations and maintaining trust with their customers and stakeholders.

Operational Risk Management: Insights from MAS

In its latest Information Paper on Operational Risk Management, MAS shared insights from thematic inspections of banks, highlighting best practices and areas for improvement in third-party risk management. This paper serves as a crucial resource for banks looking to enhance their operational resilience.

Stay Informed and Compliant with Risk Immune

Visit www.riskimmune.com to learn how our specialized services can help your institution stay ahead of regulatory changes and manage third-party risks effectively. Read our latest insights and take advantage of our expert consultancy to ensure compliance and operational excellence.

Explore Further

For more detailed readings, consult the full Consultation Paper on Outsourcing by the MAS and understand the comprehensive feedback and planned amendments to the Banking Act concerning third-party and outsourcing risk management.