The European Banking Authority (EBA) is an independent European Union (EU) Authority that works to ensure effective and consistent prudential regulation and supervision across the European banking sector. The EBA plays an important role in promoting convergence of supervisory practices to ensure a harmonised application of prudential rules.
Over recent years, financial institutions have been increasingly interested in outsourcing business activities also in order to reduce costs and improve their flexibility and efficiency. In the context of digitalisation and the increasing importance of new financial technology (fintech) providers, financial institutions are adapting their business models to embrace such technologies. Some have intensified the use of fintech solutions and have launched projects to improve their cost efficiency also in response to the intermediation margins of the traditional banking business model being put under pressure by the low interest rate environment. Outsourcing is a way to get relatively easy access to new technologies and to achieve economies of scale.
Directive 2013/36/EU (Capital Requirements Directive; CRD) strengthens the governance requirements for institutions and Article 74(3) CRD gives the EBA the mandate to develop guidelines on institutions’ governance arrangements. Outsourcing is one of the specific aspects of institutions’ governance arrangements. Directive 2014/65/EU (Markets in Financial Instruments Directive; MiFID II) contains explicit provisions regarding the outsourcing of functions in the field of investment services and activities. Directive 2015/2366/EU (Revised Payment Service Directive; PSD2) sets out requirements for the outsourcing of functions by payment institutions.
The EBA is updating the Committee of European Banking Supervisors (CEBS) guidelines on outsourcing that were issued in 2006, which applied exclusively to credit institutions; the aim is to establish a more harmonised framework for all financial institutions that are within the scope of the EBA’s mandate, namely credit institutions and investment firms subject to the CRD, as well as payment and electronic money institutions. The guidelines set out specific provisions for these financial institutions’ governance frameworks with regard to their outsourcing arrangements and the related supervisory expectations and processes. The recommendation on outsourcing to cloud service providers, published in December 2017, has been integrated into the guidelines.
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