New Norms on Outsourcing of Financial Services

Legal Updates
October 27, 2023

Home - New Norms on Outsourcing of Financial Services

Brief Overview:

‘Draft Master Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services’ (“Draft Master Directions”) is out for comments. It may be noted that the Draft Master Directions have been made applicable mutatis mutandis to subcontracted activities, as well.

Technical Details:

1) The Draft Master Directions have been made applicable to all the regulated entities (“REs“) including but not limited to Banks, NBFCs, etc.

2) Data which is shared and stored with the service provider will be required to be encrypted.

3) REs shall ensure effective process is put in place in the documents with the service provider or otherwise, to review and approve any incentive compensation arrangements.

4) Reporting of material outsourcing agreements to the relevant regulatory authorities, i.e., RBI, NHB or NABARD, as the case may be.

5) Outsourcing Agreements are now mandatorily required to include clauses specifying events of default, indemnities, resolution process, remedies, resources of the respective parties, location where the data will be processed etc.

6) IBA/respective RBI-recognised SROs to put in place a caution list of service providers whose services have been terminated on account of fraud, breach of confidentiality, blacklisting by RBI etc.

Comments on Draft Master Directions are to be sent across via e-mail, by 28^th November 2023

For further details, please see:

● RBI invites comments and feedback on draft Master Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services- Reserve Bank of India – Press Releases (rbi.org.in)

● Draft Master Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services – Reserve Bank of India – Database (rbi.org.in)

For any queries/clarifications, please feel free to ping us and we will be happy to chat:

● Mr. Ankit Sinha (ankit.sinha@jclex.com)
● Mr. Saurabh Sharma (saurabh.sharma@jclex.com)
● Ms. Devashree Limaye (devashree.limaye@jclex.com)