Bangladesh Bank guidelines for banks on outsourcing arrangements

Barrister AHM Belal Chowdhury, Director, FM Consulting International:
Bangladesh Bank has a while ago framed an outsourcing guideline for the banks for using third-party services. The new guideline has allowed banks to outsource twenty types of services to third party which include storing physical records and documents; electronic data; printing of cheques, drafts, pay orders; telephone operators; address and document verifications; call centre; mail receiving and dispatch; marketing credit, debit cards, consumer and SME loans; credit related security verifications; recruitment process before interviews; background checking; verification of candidates; payroll processing and employee benefit programmes; CSR programmes, Customer, industry and market survey, servicing cash in ATM booths; development and maintenance of software; maintaining of software, hardware machines, equipment; system access management and user support; procurement processing; sorting, filing and imaging records, documents; market and industry information through subscription and prior approval of the central bank will not be required for using these services.
Statutory Audits, Legal and Professional Advisory Services, Drawing Arrangements, Foreign Correspondent Banking, and activities not related to banking services like usage of courier, housekeeping and janitorial services, catering, security of bank premises, utilities, telephone and telecommunication services, usage of media or firms for advertisements, printing of stationeries (except cheques, drafts, etc.) shall not be considered as outsourcing and the instructions of this Circular are not applicable to those activities
Following the guideline, bank need to draw up comprehensive and clear policy which shall analyze the service providers’ financial and infrastructure resources, negotiating appropriate outsourcing contracts and establishing effective risk management programmes. Banks, however; cannot outsource its core management functions, any of its risk management functions or core banking operations. But in case of foreign banks, parts of its core management functions or risk management functions can be operated by any of its offices abroad subject to fulfilling conditions, said the notice. Any outsourcing outside Bangladesh will require prior approval of the central bank. Moreover, an activity should not be outsourced if it impairs Bangladesh Bank’s right to assess or its ability to supervise, the notice said.
Therefore, the outsourcing guideline for the banks for using third-party services is fairly comprehensive on certain matters, however; few issues need more clarification, for example we need a clear idea on which kind of activity is likely to impair Bangladesh Bank’s right to assess or its ability to supervise. This would help in a better way to prevent the misuse of the guideline.