Guidance Note for Licensed Insurers on Outsourcing

Summary

This guidance note sets out the Guernsey Financial Services Commission's expectations for how licensed insurers should govern the outsourcing of material activities or functions, whether to group entities or third parties, inside or outside the Bailiwick. It builds on Principle 16 of the Finance Sector Code of Corporate Governance, which requires insurers to retain the same degree of oversight and accountability over outsourced activities as over activities performed in house.

• Board accountability: The Board (and Senior Management where appropriate) remains responsible for outsourced functions and must not let outsourcing materially increase risk or impair the insurer's ability to meet its legal and regulatory obligations.
• Review and approval: The Board should have processes to review and approve outsourcing of material activities, including a prior risk assessment and an assessment of the insurer's ability to manage those risks and maintain business continuity.
• Outsourcing policy: Insurers outsourcing material activities should maintain a policy covering internal review and approval steps, contractual and risk considerations, and limits on the overall level or concentration of outsourcing to a single provider.
• Written contracts: Outsourcing arrangements should be governed by written contracts clearly setting out material aspects, rights, responsibilities and expectations of the parties, considering risk profile impact, provider governance and controls, provider capability and viability, and succession/transition planning.
• Provider due diligence: Before selecting a provider, the Board or Senior Management should satisfy themselves as to the provider's expertise, knowledge and skills.
• Ongoing monitoring: Outsourcing arrangements should be subject to periodic review, with periodic reports made to the Board and, where appropriate, Senior Management.

The note also reminds insurers that are financial services businesses under the Criminal Justice (Proceeds of Crime) (Bailiwick of Guernsey) Law 1999 that they must separately comply with the Commission's outsourcing rules and guidance in the Handbook on Countering Financial Crime and Terrorist Financing; this note does not alter those obligations.

Key obligations

• The Board must retain the same degree of oversight and accountability for outsourced material activities or functions as for non-outsourced ones
• The Board must maintain review and approval processes for outsourcing of material activities, including a documented risk and business continuity assessment before approval
• Insurers outsourcing material activities must have a policy addressing internal review/approval steps, contractual risk issues, and limits on concentration of outsourcing to a single provider
• Outsourcing relationships must be governed by written contracts clearly describing material aspects, rights, responsibilities and expectations of the parties
• The Board or Senior Management must assess a prospective outsourcing provider's expertise, knowledge and skills before engagement
• Outsourcing arrangements must be subject to periodic review with periodic reports made to the Board and, where appropriate, Senior Management
• Insurers that are financial services businesses under the Proceeds of Crime law must also comply with the Commission's separate outsourcing rules and guidance in the Handbook on Countering Financial Crime and Terrorist Financing

Applies to

licensed insurers, entities licensed under the Insurance Business (Bailiwick of Guernsey) Law, 2002