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India proposes tougher IT outsourcing rules for banks

India proposes tougher IT outsourcing rules for banks

India's central bank, the Reserve Bank of India (RBI), is set to introduce new rules for IT outsourcing within the financial services sector.

The draft rules have been issued in reaction to a series of technical glitches within India's banking market and concern at the growing dependency on third party service providers. 

"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," states the RBI. "Such reliance on IT/ITeS provided by third parties exposes the REs to various risks."

The draft guidelines, entitled Master Directon on Outsourcing of IT Services, cover the management of outsourcing-related concentration risk and also call for periodic assessment of outsourcing by foreign IT service providers. 

“The underlying principle of these Directions is that the RE should ensure that outsourcing arrangements neither diminish its ability to fulfill its obligations to customers nor impede effective supervision by the supervising authority,” states the draft guidelines. 

Banks have until 22 July to submit their responses to the proposals.

The RBI is not the first supervisory body to look to tighten up the rules around IT outsourcing. In November 2020, the Financial Stability Board, a global organisation tasked with devising standards around risk management, stated the need for a hamronsied approach to managing the risks of the thrid-party IT outsourcing. 

And in 2019, the Monetary Authority of Singapore issued its own draft guidelines on expanding the oversight of IT outsourcing within the banking sector. 


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