The Reserve Bank of India (RBI) today has issued the draft Master Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services. The RBI has invited the comments on the said Directions by 28 November 2023. Some of the proposed changes to the draft Master Directions are as under:
- The definition of Service Provider also includes sub-contractors to whom the service providers may further outsource some activity.
- Activities not permitted to be outsourced includes policy formulation.
- Where template structure is used for sanctioning of loans, the RE to demonstrate to the supervisory authority that lending decision was solely taken by the RE.
- Review of Incentive Compensation to be conducted by REs.
- If the service provider is owned or controlled by a director, key managerial personnel or approver of the outsourcing arrangement of the RE or their relatives, the activity may be outsourced to them with the approval of the Board/ Committee followed by appropriate disclosure.
- RE to conduct occasional joint testing and recovery exercise atleast annually.
- Audits on outsourcing arrangements to be done atleast annually and to be placed before the Board or the Audit Committee to the RE.
- Annual Compliance Certificate as approved by the Board to be submitted to the respective supervisory authority.
- All material outsourcing arrangements to be reported to the supervisory authority on a quarterly basis.
- Caution list of service providers shall be maintained by the Indian Banks Association/ respective recognised Self-Regulatory Organizations
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