Reserve Bank publishes final outsourcing policy decisions

Background

The Reserve Bank’s outsourcing policy (BS11) 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 policy’s objective is stated to be to ensure that a bank has the legal and practical ability to control and execute outsourced functions, so that it can continue to provide basic banking services (such as liquidity, payment and transaction services) while in statutory management.

In 2014 the Reserve Bank commenced a review of the operation of BS11 and concluded that the policy was being inconsistently interpreted and applied by banks.

On 2 February the Reserve Bank published its final policy decisions together with a summary of the responses of the two consultation rounds, individual responses to the two formal consultation rounds, and a Regulatory Impact Statement. A link to our previous commentary is available here, and the Reserve Banks’ consultation page is available here.

Next steps

The Reserve Bank plans to consult next month on an exposure draft of BS11. The Reserve Bank have said that the focus of this consultation will be to ensure that the revised version of BS11 clearly communicates the requirements of the policy. The Reserve Bank anticipates publishing the final policy in the second quarter of 2017.

Our View

The Reserve Bank has made minor changes to previous iterations of BS11, but the key proposals remain. The revised policy will place significant obligations on locally incorporated large banks and significant investment will still be required to comply with the policy. The Reserve Bank’s Regulatory Impact Statement indicates that the cost to industry will be extremely significant – the Reserve Bank estimates the cost to be $550 million, but observes that industry estimates are more like $870 million.

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