EBA欧洲银行-CP02_feedback_14页_195kb

Summary of Feedback to the Public Consultation on "High Level Principles on Outsourcing" (CP02)

Core Content

The European Banking Authority (CEBS) conducted a public consultation on "High Level Principles on Outsourcing" (CP02) in 2004, which ended on 31 July 2004. A total of 23 responses were received, with 22 published on the CEBS website. Following the consultation, CEBS replaced the concept of high-level principles with standards, aligning them with the regulatory framework under MiFID and ensuring cross-sectoral consistency with other regulatory bodies like CESR and CEIOPS.

Main Comments and Industry Concerns

1. Scope and Definitions

• The three-tier approach (strategic/core, non-strategic but material, non-strategic and non-material) was considered too complex and confusing.
• There was a call for more precise definitions of terms like "outsourcing" and "purchasing".
• Some respondents suggested that outsourcing should only apply to core banking activities.
• A distinction was requested between outsourcing to licensed and non-licensed entities.

2. Materiality and Risk Management

• The term "material" was not clearly defined, and there were concerns about the application of the materiality test.
• Risk management was seen as a broad function, and many respondents argued that it should not be considered a core management function.
• There was confusion between "strategic" and "core" functions, with some suggesting they are the same.

3. Intra-Group and Cross-Border Outsourcing

• Some respondents believed that intra-group outsourcing should not be regulated, as the parent institution maintains overall risk management standards.
• There was a call for a distinction between intra-group and cross-border outsourcing, particularly with regard to third-country providers.
• Concerns were raised about prudential arbitrage in cross-border outsourcing and the need for equivalent standards.

4. Cancellation Rights

• The right of the supervisory authority to cancel an outsourcing contract was widely opposed.
• Respondents argued that such a provision was too far-reaching and potentially illegal.
• A suggestion was made to include a clause allowing the outsourcing institution to renegotiate or terminate the contract due to supervisory intervention.

5. Chain Outsourcing

• The industry expressed concerns about the risks of chain outsourcing (sub-outsourcing).
• A general prohibition on sub-outsourcing in the first contract was suggested, but CEBS considered this overly strict.
• The responsibility for chain outsourcing decisions was maintained with the outsourcing institution.

CEBS' Main Answers and Revisions

1. Legal Quality and Binding Nature

• CEBS clarified that its standards are non-binding but carry considerable authority.
• The CEBS Charter states that guidelines and standards are introduced on a voluntary basis by national supervisory authorities.

2. Definitions and Scope

• A two-tier approach was adopted to replace the three-tier structure, focusing on material and non-material activities.
• The definition of outsourcing was aligned with the Joint Forum's Consultation Paper, including both intra-group and external providers.
• A definition of "material activities" was introduced in Standard 1.f, while the term "core" remains open to interpretation.

3. Pre-notification and Supervisory Intervention

• The requirement for pre-notification was dropped in favor of adequate information to be provided in accordance with national law.
• The cancellation right was removed due to legal and enforceability concerns, but the supervisory authority's right to interfere was retained in a more nuanced form.

4. Intra-Group and Cross-Border Outsourcing

• Intra-group outsourcing is not exempt from the standards and is subject to the principle of proportionality.
• Cross-border outsourcing is addressed in the same way as intra-group, with a focus on equivalent standards and prudential consistency.

5. Secrecy and Service Level Agreements (SLA)

• Secrecy provisions were included to ensure that outsourcing service providers maintain the same level of confidentiality as the outsourcing institution.
• SLAs are not required to be in writing, though the service must be clearly defined in the contract.

6. Chain Outsourcing

• The issue of chain outsourcing was moved to Part 2 of the standards, under Standard 10, and is now addressed as a risk management concern rather than a strict prohibition.

Key Information

• CEBS' goal: To establish a generic and flexible framework for outsourcing that aligns with MiFID and other regulatory bodies.
• Industry feedback: Generally positive on the scope and structure, but with requests for clarity, consistency, and flexibility.
• CEBS response: Adopted a two-tier classification, removed mandatory pre-notification, and moved chain outsourcing to Part 2.
• Ongoing challenges: Ensuring cross-sectoral alignment, defining materiality, and balancing supervisory authority powers with institutional autonomy.

Conclusion

The consultation process resulted in a revised set of standards that reflect a more pragmatic and flexible approach to outsourcing. These standards are designed to align with MiFID, ensure consistency across regulatory bodies, and address industry concerns regarding definitions, materiality, and supervisory intervention.