Reserve Bank of India Releases Guidelines for IT Outsourcing by Financial Institutions

The Reserve Bank of India (RBI) has released a set of guidelines for the outsourcing of Information Technology services by banks NBFCs and other financial institutions.

These guidelines are aimed at providing a framework for the Regulated Entities (REs) to ensure that they manage the risks associated with outsourcing of IT services effectively.

One of the key requirements set by the RBI is that the REs intending to outsource any IT activities must set up a comprehensive Board-approved IT outsourcing policy. The policy should include the roles and responsibilities of the Board Committees of the Board (if any) and Senior Management, IT function, business function as well as oversight and assurance functions in respect of outsourcing of IT services.

The policy must also cover the criteria for selection of such activities as well as service providers, parameters for defining material outsourcing based on the broad criteria, delegation of authority depending on risk and materiality, disaster recovery and business continuity plans, systems to monitor and review the operations of these activities and termination processes and exit strategies, including business continuity in the event of a third-party service provider exiting the outsourcing arrangement.

The guidelines also emphasize the importance of putting in place a Risk Management framework for Outsourcing of IT Services. This framework should comprehensively deal with the processes and responsibilities for identification, measurement, mitigation, management, and reporting of risks associated with Outsourcing of IT Services arrangements. The REs also need to put in place a management structure to monitor and control its Outsourced IT activities.

Moreover, the guidelines highlight the need for the REs to closely monitor government policies of the jurisdiction in which the service provider is based and the political, social, economic and legal conditions on a continuous basis. This includes having appropriate contingency and exit strategies in place. Further, it must be ensured that availability of records to the RE and the RBI will not be affected even in case of liquidation of the service provider.

In conclusion, the RBI guidelines on outsourcing of IT services are aimed at ensuring that the REs manage the risks associated with outsourcing of IT services effectively. These guidelines are comprehensive and cover all aspects of outsourcing, from selection of service providers to termination processes and exit strategies. It is important for REs to comply with these guidelines to ensure that they are able to effectively manage the risks associated with outsourcing of IT services.