RBNZ seeks feedback on banks' outsourcing services

The Reserve Bank is looking at policies governing banks' outsourcing of some services after a stocktake of lenders' practices last year found a range of interpretations of the rules.

The central bank has issued a consultation document and wants feedback on proposals to more tightly define what functions should be covered by the outsourcing policy, how lenders should interact with the RBNZ, and whether the threshold used for the outsourcing policy should match the open bank resolution (OBR) policy.

"The stocktake found that the banks’ interpretation and application of the outsourcing policy varied, and that there were interpretational differences as to what functions should be defined as 'core', what continuity planning in the event of the failure of the parent bank, and the effectiveness and sustainability of manual workarounds," the paper said. "The stocktake also highlighted that, while the practical and legal controls in place are useful for an event involving a natural disaster or technology failure, it is not clear how banks would continue to operate under a stress event occasioned by a complete supplier failure or a bank failure."

The consultation closes on Nov. 4, and the central bank expects to engage with the banking industry during the 10 week period.

The Reserve Bank's OBR policy, which governs how banks operate in the event of a failure, prompted the reassessment of the outsourcing policy to ensure an orderly wind-down of a bank wouldn't be undermined by functions being outsourced.

Among the proposals under consideration would be aligning the threshold to meet the outsourcing policy, which is holding $10 billion in New Zealand liabilities, to the $1 billion retail deposit level triggering the need to meet OBR rules.

The RBNZ expects to give banks six months to finalise their new policy once the outsourcing regime is settled on, with a two year transition period.

BusinessDesk.co.nz

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