4 October 2005

RBNZ releases revised outsourcing policy for banks

The Reserve Bank today published a revised draft policy on the requirements which will apply to large New Zealand banks that have entered into outsourcing arrangements. The revisions to the draft policy follow feedback on an earlier consultation paper issued in November 2004. The Reserve Bank is seeking to finalise the policy in late 2005.

Reserve Bank Deputy Governor Adrian Orr said: "While outsourcing of banks' business functions is increasingly common and often a sensible business practice, it can expose banks and the financial system to new or increased risks that must be managed appropriately."

"Bank and bank service-provider failures are low-probability events, but they can have a potentially high and immediate impact economy-wide. The draft outsourcing policy aims to provide safeguards to the stability of the New Zealand banking system against the possibility of such occurrences. "

The draft policy focuses on ensuring that the New Zealand bank board maintains the necessary legal and practical ability to control outsourced functions so that the bank can continue to provide critical services in a crisis situation. This also requires the New Zealand boards of large banks to exercise meaningful control and oversight over the bank's chief executive and staff.

"We have ensured that our proposals do not involve excessive costs for banks by focusing on the outcomes we require, rather than being prescriptive about banks' systems. This approach allows banks more flexibility in meeting the requirements. The emphasis also remains on bank directors to manage outsourcing risk as part of their normal business process," commented Adrian Orr.

The Reserve Bank will be working with each bank to implement the draft policy taking into account its individual circumstances and investment cycles.

View the revised draft policy and associated documentation.

For further information contact
Anthea Black
External Communications Adviser
Ph 04 471 3767, mobile 021 2225225, anthea.black@rbnz.govt.nz