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CEBS Consultation - Outsourcing Summary

Core Content

The document is a response from the Austrian Federal Economic Chamber's Bank and Insurance Division to the CEBS consultation paper on outsourcing in the financial sector. It provides detailed considerations and recommendations regarding the classification of outsourcing activities, the definition of materiality, the role of national supervisory authorities in cross-border outsourcing, and the distinction between intra-group and external outsourcing.

Main Points and Key Considerations

1. Classification of Outsourcing Activities

• The three categories proposed by the CEBS consultation paper are generally considered favorable:
  • (a) Strategic or core activities which cannot be outsourced.
  • (b) Non-strategic but material activities, which should be pre-notified to the supervisory authority.
  • (c) Non-strategic and non-material activities, which do not require pre-notification.
• However, the distinguishing features of these categories are not sufficiently clear for practical application and should be supplemented with examples or more precise definitions.

2. Materiality and Its Definition

• A more detailed and consistent definition of "materiality" is needed, especially in the context of cross-border outsourcing.
• The consultation paper suggests the development of a "materiality test" and a comprehensive catalogue of material activities to ensure legal clarity and a level playing field.

3. Cross-Border Outsourcing and Supervisory Coordination

• There is a concern that differences in how national supervisory authorities define and interpret "important" and "less important" activities may complicate or prevent cross-border outsourcing.
• Co-operation and coordination among national supervisory authorities are essential for cross-border outsourcing processes.

4. Intra-Group vs. External Outsourcing

• The distinction between intra-group and external outsourcing should be increasingly considered in outsourcing policy and contract drafting.
• Intra-group outsourcing involves services provided by central sectoral companies, which are not true outsourcing but rather internal coordination.
• For a decentralised group, it is uneconomical to draft SLAs with every single institution. Instead, SLAs should be agreed upon through a central body.

5. Risk Management and Outsourcing

• Risk management is not clearly defined in the consultation paper. The authors propose using the definition from EU-CP3 of 1 July 2003.
• Based on this definition, certain non-core functions (e.g., data pooling, rating model development) can be outsourced, while core functions (e.g., qualitative customer rating) cannot.
• The responsibility for outsourced activities must remain with the outsourcing institution.

6. Contingency Plans and Exit Strategies

• A dedicated internal unit or individual should be responsible for supervising and managing each outsourcing measure.
• The authors object to the idea of creating a new organisational unit for this purpose, as it would unnecessarily tie up resources. Instead, individuals from the relevant area should be responsible.
• In the case of intra-group outsourcing, the need for approval from the parent company and its supervisory authority should be clearly explained.

7. Legal and Regulatory Implications

• The consultation paper should clarify the rationale for involving supervisory authorities in decisions regarding non-core functions.
• A uniform approach across EU jurisdictions is necessary to avoid legal entanglements and ensure coherence in regulatory frameworks.

Conclusion

The document highlights the need for a more precise and coherent definition of outsourcing categories, especially with regard to materiality and the distinction between intra-group and external outsourcing. It also stresses the importance of supervision and coordination across national borders, as well as the necessity of maintaining responsibility for outsourced activities with the outsourcing institution. The authors recommend the development of a common materiality test and the use of existing definitions to ensure clarity and consistency in regulatory practices.