Ensure safeguards while outsourcing: RBI to NBFCs

NBFCsThe Reserve Bank of India (RBI) has advised the Non-Banking Financial Companies (NBFCs) to ensure existing safeguards prior to outsourcing any activities.

Safeguards hold prime importance in evaluating the service provider’s capability, customer confidentiality and security, responsibilities of agents, and monitoring and control of the outsourced activities.

The apex body further directed the NBFCs to conduct a self-assessment of their existing outsourcing arrangements and bring them in adherence to its “Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Services by NBFCs” within two months.

The directive comes in wake of the several outsourcing activities conducted by NBFCs and indirectly giving rise to various risks (including strategic, reputation, compliance, operational, counter-party, contractual).

The regulator has taken this step in a bid to ensure a protected financial activity to the customers of the NBFCs.

Post this directive, NBFCs would be held responsible for the illegitimate actions of their service provider including direct sales agents (DSAs)/direct marketing agents (DMAs) and recovery agents and the confidentiality of information pertaining to customers that is available with the service provider.

 NBFCs will retain the ultimate control of the outsourced activity.

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