RBI issues guidelines for off-shore outsourcing of financial services by Banks
Dec 11, 2008: In view of the extensive use of outsourcing by banks, Reserve Bank had laid down a framework for managing the attendant risks in outsourcing. It is entirely for the banks to take a view on the desirability of outsourcing a permissible activity related to financial services having regard to all relevant factors, including the commercial aspects of the decision, However, should a bank, in its own judgment, decide to outsource a financial services activity, necessary safeguards for addressing the risks inherent in such outsourcing should be put in place.
As regards the off-shore outsourcing of financial services relating to Indian Operations, RBI has now asked banks to additionally ensure that-
a) Where the off-shore service provider is a regulated entity, the relevant off-shore regulator will neither obstruct the arrangement nor object to RBI inspection visits / visits of banks internal and external auditors.
b) The availability of records to management and the RBI will withstand the liquidation of either the offshore custodian or the bank in India.
c) The regulatory authority of the offshore location does not have access to the data relating to Indian operations of the bank simply on the ground that the processing is being undertaken there (not applicable if off shore processing is done in the home country of the bank).
d) The jurisdiction of the courts in the off shore location where data is maintained does not extend to the operations of the bank in India on the strength of the fact that the data is being processed there even though the actual transactions are undertaken in India and
e) All original records continue to be maintained in India.”
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