RBNZ to consult with banking industry over outsourcing policy
(28 August 2015 – New Zealand) The Reserve Bank of New Zealand (RBNZ) released a consultation paper with proposals for an updated outsourcing policy for the country’s banks.
The current outsourcing requirements date back to 2006 and apply to all locally incorporated banks whose New Zealand liabilities exceed NZ$10 billion (A$9.1 billion).
The current policy is mainly focused on underpinning the provision of liquidity to the financial system in the event of stress or failure of a bank or of a service provider to a bank.
In a release, the RBNZ said while these objectives are still valid, it is good practice to review policies from time to time, in particular as the regulatory landscape has changed over the past nine years.
As an example, the pre-positioning of the Reserve Bank’s Open Bank Resolution (OBR) policy may have implications for the shape of the outsourcing policy.
The proposed outsourcing policy also aims to enhance banks’ ability to provide basic banking services after a separation from a parent or post the failure of a service provider.
Also, an internal stock-take of the outsourcing policy has revealed a need for enhanced clarity around the requirements of the policy and greater consistency in its application across the banking sector.
To achieve these objectives, the RBNZ has made a number of proposals to update the policy. The main proposals (subject to the outcome of consultation) are: an explicit requirement for a separation plan for subsidiaries of foreign-owned banking groups; a list of functions that are not relevant for the outsourcing policy; a list of functions that cannot be outsourced; a clearer process for obtaining non-objection from the Reserve Bank for outsourcing proposals; a compendium of outsourced functions; and a possible alignment of the threshold used for deciding to which banks the outsourcing policy should apply with the threshold used for OBR.
The central bank appreciates that outsourcing can produce efficiency benefits for banks and that it allows banks to access state-of-the-art technology and practices that are not necessarily available internally or within New Zealand.
The proposed new policy does not prevent banks from realising those benefits.
The policy also does not prohibit the use of outsourcing arrangements.
The consultation will run for 10 weeks and closes on 4 November 2015. During this time the Reserve Bank plans to engage with the banking industry.
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