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<>/ExtGState<>/XObject<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 595.08 840.84] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> Principle 2: The FRFI should establish a third-party risk management framework (TPRMF) that sets out clear accountabilities, responsibilities, policies, and processes for identifying, managing, mitigating, monitoring, and reporting on risks relating to the use of third parties. Annex 1 of this Guideline. whenever there is material change in the arrangement or third party (including disruption at the third party or in the service provided). The TPRMF should set out how the FRFI will identify and assess; manage and mitigate; and monitor and report on third-party risk. That is, a failure in performance of the third party could cause significant harm to the FRFIs operations and/or reputation. Defining a third-party risk audit coverage approach. series endobj Monitoring should be conducted at the individual arrangement level, as well as at an aggregate business unit, segment, platform, and enterprise level. endobj Please see Section 3 of this Guideline for OSFI expectations related to such third-party arrangements. This annex provides a non-exhaustive list of provisions that FRFIs should include in duly executed agreements with third parties (tailored to the circumstances of the third-party arrangement): Nature and scope of the arrangement: The agreement should specify the nature and scope of the arrangement, including provisions that address the frequency, content and format of services, duration of the agreement, and physical location of the services being provided. <>/Metadata 285 0 R/ViewerPreferences 286 0 R>> Specifically, the FRFI and OSFI should be able to evaluate the risks arising from the arrangement or appoint independent auditors to evaluate the risk management practices related to service provided and the risks arising from the relationship on the FRFIs or on OSFIs behalf. 0000002508 00000 n

1 0 obj The FRFIs senior management should also be satisfied that third-party arrangements are in alignment with the FRFIs risk appetite and managed proportionate to the level of risk and criticality. 0000033786 00000 n Determining whether the organization has a third-party risk management structure that results in a patchwork approach, and, if so, how to bring it together into an enterprisewide framework. Third-Party Risk Management and Principle 9: The FRFIs agreement with the third party should encompass the ability to deliver operations through a disruption, including the maintenance, testing, and activation of business continuity and disaster recovery plans. 618 The FRFI should also have the right to conduct or commission an independent audit of a third party. 0000005943 00000 n For clarity, the third-party risk management expectations set out in this Guideline are not intended to replace or substitute for, but rather to serve in addition to, appropriate counterparty credit risk and market risk management activities applied in respect of financial market infrastructures. 0000032681 00000 n Agreements should establish, among other things: the scope of the records and data to be protected; availability of the records and timely access to data by the FRFI and OSFI, upon request; controls and monitoring over the third partys use of the FRFIs systems and information; clear responsibilities of each party in managing data security; which party is liable for any losses that might result from a security breach; and. Standardized Contracts/Special Arrangements, 3.2.. Insurance Companies Act, and the To determine the appropriate level of mitigation, the FRFI should assess concentration risk both prior to entering a contract or agreement and on an ongoing basis. 0000001764 00000 n "]DLA{(+8Z%35o$?d%"l|W8z-KU} 7r`unhAk9( << Outcome: Risks posed by third parties are identified and assessed. Outcome: Third-party performance is continually monitored and assessed, and risks and incidents are proactively addressed. stream Such provisions could include, among other things, requirements to promptly notify the FRFI of technology and cybersecurity incidents (at the third party or the subcontractor) including providing information on each incident in line with the Advisory. The FRFI should assess whether the existence of material subcontracting might negatively impact their operational and financial resilience during a significant disruption within the third partys supply chain, and whether this impact could outweigh the benefits of the arrangement. hb```b``rAX,=!9E5Ud9fQN@pJnO~M]oY\]ME=>W\. %PDF-1.6 % RNYu1LP=9"PXPP'Ybw0, ;0Ml 1@RFQZN;T2=T]}$_v^Aff. Office of the Superintendent of Financial Institutions. In addition to planning appropriate exit strategies (see Section 2.3.5), the FRFI should also consider portability when entering an arrangement with a cloud service provider and as part of the design and implementation process in cloud adoption. 0000001962 00000 n xZ+Wh`&M [ Y E {O$[- MXS_.7xxW>n0]~1E;.?/a|o>"|kXv~Dz|mg'B7%+"n0oDIa>arog91Ou;Q+`90)BdD`I*]a`^Cof@Hz\NGPSfgi8_C.+Vi9cYJBL# e4ZnHk;j14h\]]t6 tbXy&cSl{.^ce/IjB$yFea7LW/~1PY%K@"(dHx An outsourced activity, function or service is one that is, or could be, undertaken by the FRFI itself and is a type of third-party arrangement. making substitutability of the third party more difficult; increasing the likelihood that the insolvency of or an operational disruption at a third party or its subcontractor has ramifications on the FRFI or throughout the financial services industry; exposing the FRFI or the financial services industry to increased impact of natural disasters or other external events; and. Risks posed by third parties are managed and mitigated within the FRFIs risk appetite framework. 192 0 obj 0000007432 00000 n OSFI expects the FRFI to manage third-party risks in a manner that is proportionate to the level of risk and complexity of the FRFIs third-party ecosystem. The FRFI should establish exit plans proportionate to the level of risk and criticality of individual third-party arrangements to ensure continuity of the FRFIs operations through normal and stressed times. stream 0000001159 00000 n /Widths 193 0 R 4 0 obj In such cases, the FRFIs risk assessment should consider inherent risks, mitigating controls and other factors to arrive at the final risk rating for these arrangements. The preference is always to have the arrangement documented in a contract; however, OSFI recognizes that there may be situations where obtaining a contract is challenging. Draft Guideline B-15 Technology and Cyber Security Incident Reporting Advisory. Governance and accountability structures are clear with comprehensive risk management strategies and frameworks in place to contribute to ongoing operational and financial resilience. Bank Act. Outcome: Governance and accountability structures are clear with comprehensive risk strategies and frameworks in place to contribute to ongoing operational and financial resilience. endobj Throughout this document, the term subcontractors refers broadly to the third partys supply chain. Risks posed by third parties are identified and assessed. 191 0 obj 3 0 obj In situations where a standardized or no formal contract or agreement supports the arrangement, OSFI still expects the FRFI to have a third-party risk management program that covers the relationship, and that is proportionate to the level of risk and criticality of the third-party relationship.

Electronic Records must be capable of being reproduced in intelligible written form within a reasonable period of time. Corporate Governance Guideline for OSFIs expectations of FRFI Boards of Directors in regard to business strategy, risk appetite and operational, business, risk and crisis management policies. /XHeight 250 0000032720 00000 n %PDF-1.7 % Outlining key roles, responsibilities, and risks in managing third-party providers. In addition, these agreements should specify that the FRFIs data and records be isolated from those of other clients at all times, including during the transfer process and under adverse conditions (e.g., disruption of services). The absence of a written arrangementFootnote 14 does not obviate the existence of a third-party relationship. 0000003504 00000 n

<>/Font<>/XObject<>/Pattern<>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/MediaBox[ 0 0 540 732] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> ,A g^pJF|LF/]08RyD!=4nPX&V( Lg CLY_(VR.Zb>v'^bG Fi7Q={SCN)K1k70=R*@;! OSFI expects third-party arrangements to be supported by a written contract or other agreement (e.g., service level agreement) that sets out the rights and responsibilities of each party and which has been reviewed by the FRFIs legal counsel. Unless it is reasonable to conclude that the results of the service will not be subject to audit procedures during an audit of the FRFIs financial statements, the FRFI should not obtain the following services from its external auditor: Any internal audit service related to the internal accounting controls, financial systems, or financial statements of the FRFI.

endobj Use of subcontractors:The agreement should establish parameters on the use of subcontractors and require the third party to notify the FRFI of any subcontracting of services so that the FRFI may conduct due diligence, as well as assess and manage the risk of the subcontractors and any potential impacts from a change in service. Annex 2 of this Guideline. Prior to entering a third-party arrangement, the FRFI should identify and understand risk factors related to the third partys subcontracting practices, including, at minimum: level of subcontracting, including whether there are material subcontractors; geographic locations of subcontractors and any associated political, security, economic, environmental, social, and other risks; ability of subcontractors to provide services in alignment with the performance standards and controls outlined in the third-party contract, including through disruption; and. <<27E64938890834448F5A15EC28DF5052>]/Prev 666134/XRefStm 1764>> jsJc=8#Ap5EVyt =*J\UQP`kG5-;`Slwr=eITvHxEgza4w~>9ip- pbe[[>S^F}3LUQ!La^IVxn0OGdthZn; pWb]@fb"?L^`V+X^]_oUcN~+wBMuIn&Lo ugC=uWZ3]sPO=~i7ZU) Cuk>?&^`qmOwMo_ mpxx'e8}6:{k]_4OmvZ=Y'B).k9i15rhL Q0+oDz8!%+J6_rJ>(aN6)S!sPdu)-E-#ui.VGSV>X;;Y)ls-bN|[>,eh+1:OAz+D>m{{Kg3-k <> For certain types of information, such as reinsurance arrangements or files on more complex activities, reproduced electronic Records may not be sufficient for OSFI's review and the executed copy may need to be available, upon OSFI's request. /FirstChar 32 Technology and Cyber Security Incident Reporting Advisory; significant organizational/operational changes. 0000004416 00000 n uOl%9Xsb:|GDDYv~LS1 Vb%_p2i Please see ss. Such risk assessments should, at minimum: determine whether the arrangement aligns with the FRFIs risk appetite for third-party risk and other relevant risks; establish the level of risk and criticality; and. The FRFI should employ a range of audit and information gathering methods (e.g., independent reports provided by third parties, individually performed or pooled audits). Remediation actions should be monitored by the FRFI. 0000011042 00000 n This practice guide is a useful tool to become better informed on risks related to third-party provider management. Once the framework is designed, OSFI may provide relevant guidance as appropriate. As part of an effective third-party risk management program, the FRFI should ensure that its third parties have clearly defined and documented processes for identifying, investigating, escalating, remediating and notifying the FRFI in a timely manner of incidentsincluding subcontractor incidentsthat could directly or indirectly impact the third partys ability to deliver the contracted goods and/or services. OSFI recognizes that technology and cyber risk in third-party arrangements present elevated vulnerabilities to the FRFI. Security of records and data: The agreements should govern the confidentiality, integrity, security, and availability of records and data. <> Technology and Cyber Security Incident Reporting Advisory; Strength of the third partys information security programs including their alignment with the FRFIs programs; The third partys capacity to provide critical services through disruption by examining its business continuity and disaster recovery plans, including the quality of such plans and the frequency and results of testing; The third partys reliance on, and capacity to, manage subcontractors; Impact of the third-party arrangement, including its subcontractors, on concentration risk; Geographic location of the third partys and its material subcontractors operations; Ability and ease of substituting the third party with another third party and impact of such substitution on the FRFIs operations; Portability of applications/services provided by a third party to another third party or the FRFI; Third partys business objectives, human resource policies, service philosophies, business culture, and their alignment with those of the FRFI; and. 262(3.1) of the stream endobj series /Subtype /TrueType Specifically, the FRFI should conduct risk assessments to decide on third-party selection; (re)assess the risk and criticality of the arrangement; and plan for adequate risk mitigation and oversight. A critical third-party arrangement is one where the third party performs a function or service that is integral to the FRFIs provision of a significant operation, function, or service. 4239 0 obj <> endobj These requirements should be accompanied by robust cloud governance to provide proper oversight and monitoring of compliance with the FRFIs risk management practices and alignment to the broader technology strategy. $ke` xUn@+xfC[SKbb7 g-kPG|4vl;~U1:M!=<6#3w#+:Hdg9@6:E( 5OvN*=]o$my,kYG~9H=zyTje-)Q'2.p3f2BI/Ms8$I5|q)%+6yT:i:a]P4Eqg~#sR\[f7-N'fD~68q]Fy|jmp5 gmx%#]F7u#N9*'7F:q- Oct 15, 2018. Further exploration into risks resulting from the types of services being provided and the sensitivity of data being shared is covered. A The FRFI should have contingency plans for its critical third-party arrangements. Please see Sections 2.3.2.1 and 2.3.2.2 of this Guideline. 1.2. << aggregate reporting to Senior Management on third-party risk exposure and trends to inform the FRFIs current and emerging risk profile, including an inventory of third-party providers delineated by level of risk and criticality of the provider. 0000000016 00000 n Copyright 2022 The Institute of Internal Auditors. Business continuity and recovery: The agreement should require the third party to outline measures for ensuring continuity of services in the event of disruption including testing and reporting expectations and mitigation requirements, as well as requirements of the third party to monitor and manage technology and cyber security risk. At a minimum, OSFI expects the FRFI to include in written agreements the provisions that are set out in <>/Metadata 3522 0 R/ViewerPreferences 3523 0 R>> 0000021171 00000 n 2 0 obj

The periodically on an ongoing basis proportionate to the level of risk and criticality or whenever there are material changes to the third-party arrangement, such as the nature of the arrangement or its criticality. Notifications to the FRFI: The agreement should require the third party to notify the FRFI of: incidents/events (at the third party or a subcontractor) that impact or could potentially impact services provided, the FRFIs customers/data or the FRFIs reputation; technology and cyber security incidents (at the third party or a subcontractor) to enable the FRFI to comply with its reporting requirements under OSFIs develop a plan, with appropriate intensity of monitoring and mitigating actions, to manage the arrangement within the FRFIs risk appetite. /Type /FontDescriptor ;)*Rs/H7' N0\|N-?#Y96`m-sJJ36 LP btTFy7M>@ %PDF-1.4 732 0 obj <>stream The FRFI should conduct risk assessments of each third-party arrangement to determine the risk and criticality of the arrangement, considering both risks created and reduced (e.g., using suppliers in various jurisdictions to reduce geographic concentration) by the arrangement, as well as potential mitigants. Records that change less frequently than daily remain accurate until they change. 0000024917 00000 n ?o7 0000015850 00000 n 0000009957 00000 n At minimum, the TPRMF should establish and govern the following elements: accountability for third-party risk management, including for relevant oversight functions; clear roles and responsibilities for overseeing and managing third-party arrangements and associated risk management processes; third-party risk appetite and measurement (e.g., limits, thresholds and key risk indicators); methodology for assessing the level of risk and criticality of third-party arrangements; policies, standards, systems and processes governing third-party risk, which are approved, regularly reviewed and consistently implemented enterprise-wide; processes and systems for identifying, assessing, managing, monitoring, measuring, and reporting on third-party compliance with contractual provisions and/or service level agreements, including processes for managing exceptions and incidents; processes for identifying, assessing, managing, monitoring, measuring, and reporting on third-party risks (including, among others, technology, cyber, concentration, business continuity, strategic and financial risks), and the contribution of third-party arrangements in aggregate to the FRFIs overall level of risk; and. Criticality should also be reviewed periodically. Technology and Cyber Risk Management and. Potential for political or legal risks related to the jurisdiction of the third party, or the jurisdictions of any material subcontractors. /AvgWidth 536 3(f' YtUZ'd. endobj Bank Act, ss. In those circumstances, the FRFI must provide OSFI with immediate, direct, complete and ongoing access to the Records that are stored outside Canada.Footnote 11. (TGl%XUG&:SR62$Yt7"RB0AQr!cT\HR1%HQ,mAFt8#5KI I"EX&IzKYBVt&:H#]"I}R&0!jRRxC"}W$$5LuDaCHa#iHudi=,)u }*yS0R)ku4LtH:(QP$g#I,5!AFZ$>}X>S;Myng|_5oVyys. The processes established should clearly define accountabilities at all levels of the FRFI and triggers for escalation within the FRFI. h[mo7%7 !-W)R+-?yF\3|*SY5Tg\X+@mICr%#I}!hXq RXS\%6"I`fY|*G%\kdM!XM+gr"d%+6$,HdR s"e-JdbW,%VFBXK,Q)I$:kH%^-FtHuRk endobj At minimum, due diligence should consist of the following non-exhaustive factors: Experience, technical competence, and capacity of the third party to implement and support the activities it is being engaged to provide, including, where applicable, the experience, technical competence, and capacity of material subcontractors; Financial strength of the third party to deliver successfully on the third-party arrangement; Compliance with applicable laws, rules, regulations and regulatory guidance within Canada and other relevant jurisdictions; Potential reputation risk associated with the third-party relationship or its services, including existence of any recent or pending litigation, investigation or complaints against the third party; Strength of the third partys risk management programs, processes, and internal controls as well as the reporting environment (the FRFI should determine if there is alignment with the FRFIs risk management processes and controls); manage technology and cyber risks in accordance with the expectations outlined in OSFIs Guideline B-13: Please see ss. Subcontracting risk stems from the complexity and interdependency of the third-partys supply chain. /Encoding /WinAnsiEncoding Pricing: The agreement should set out the basis for calculating fees relating to the services being provided. Default and termination: The agreement should specify what constitutes a default, or right to terminate, identify remedies, and allow for opportunities to cure defaults or terminate the agreement.

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