Reserve Bank publishes exposure draft of outsourcing policy

The Reserve Bank has published an exposure draft of the revised outsourcing policy (BS11) for registered banks. It has also published a further consultation paper, a draft “white list” (being the list of functions not considered outsourcing for the purposes of the policy), and a draft list of pre-approved outsourced functions (being those functions performed by a related party which will not need to be submitted to the Reserve Bank as part of the “non-objection” process).

Background

The Reserve Bank’s outsourcing policy regulates the use of external service providers by locally incorporated large banks (whose New Zealand liabilities, net of amounts due to related parties, exceed $10 billion).

The stated objectives of the policy are to ensure that outsourcing arrangements made by a bank do not compromise the bank’s ability to:

  • be effectively administered under the statutory management for the purposes of continuing to provide and circulate liquidity to the financial system and the wider economy;
  • facilitate the carrying on of basic banking services by any new owner of all or part of the bank; and
  • address the impact that the failure of a service provider may have on the bank’s ability to carry on all or part of the business of the bank.
    A link to our previous commentary is available herehere and here, and the Reserve Bank’s consultation page is available here.

Next steps

Consultation on the exposure draft closes 26 May 2017, after which the Reserve Bank will finalise the revised policy.

The Reserve Bank has said it will consider “concrete” drafting suggestions made by submitters that are aimed at clarifying the wording of the policy. However, the Reserve Bank noted that the substance of the policy has been finalised and that it is not seeking feedback on the policy decisions it has made.

The Reserve Bank expects to release a final version of the revised policy and implement changes to banks’ conditions of registration by July 2017. The policy provides for a five-year transition period. However, each bank is expected to agree with the Reserve Bank its own path to compliance (within 6 months from the date of the new outsourcing policy becoming a condition of registration). The Reserve Bank intends to monitor progress against the agreed timeframes during the transitional period.

Our View

Banks and their advisers will need to review the exposure draft in detail to ensure that the policy is workable. We anticipate increased scrutiny of the “white list” and the schedule of pre-approved functions and services.

If you have any questions in relation to the Reserve Bank outsourcing policy, please contact one of our experts.