The Bank for International Settlements (BIS) is urging financial institutions that outsource business to offshore centres to closely monitor risk and compliance procedures.
According to a paper compiled by BIS' Joint Forum, banks, brokers and insurance companies that outsource activities such as IT and back-office administration, as well as functions such as call centres, need to remember that they also transfer risk management and compliance requirements to those third parties.
The BIS says: "Industry and regulators acknowledge that this increased reliance on the outsourcing of activities may impact on the ability of regulated entities to manage their risks and monitor their compliance with regulatory requirements."
BIS says there is also concern among regulators as to how outsourcing could potentially impede the ability of firms to demonstrate that they are taking appropriate steps to manage risks and comply with regulations.
The organisation says firms can mitigate risks by taking steps to draw up clear outsourcing policies, establish effective risk management programmes and analyse the financial and infrastructure resources of the service provider.