On June 22, the European Banking Authority (EBA) published a consultation paper with draft guidelines on arrangements for outsourcing business activities.

The EBA’s draft guidelines differentiate between the nature of the functions outsourced so that functions that are more critical are subject to stricter and stronger requirements. The guidelines include:

  1. ultimate responsibility for the proper management of the risks associated with outsourcing or of the outsourced activities lies with an outsourcing institution’s senior management (i.e., outsourcing arrangements can never result in the true delegation of senior management’s responsibility);
  2. outsourcing must not lead to a situation where an institution becomes a so called “empty shell” that lacks the substance to remain authorized; and
  3. outsourcing, for the purposes of the guidelines, does not include the acquisition of services (e.g., legal representation and catering) or utilities not typically performed by the institution.

The EBA’s draft guidelines build on existing guidelines for credit institutions on outsourcing published in December 2006 by the Committee of European Banking Supervisors (CEBS). However, the EBA’s draft guidelines extend to establish a more harmonized mandate for all financial institutions, including investment firms.

The EBA’s consultation paper is available here.