The Hindu Business Line : EU banking sector mulls standard outsourcing principle

BANKING and financial services in the European Union (EU) are working towards setting up a standard principle for outsourcing. As a first major step in this regard, the Committee of European Banking Supervisors (CEBS) recently developed high-level principles (HLPs) that could be used to converge supervisory approaches and practices relating to outsourcing. The CEBS comprises high-level representatives from banking supervisory authorities and central banks of the EU.

According to information available on the Internet, about eight lakh European financial services jobs will migrate offshore by the end of 2008. Indian information technology (IT) and IT-enabled service firms, including BPO (business process outsourcing) firms, need to keep a close eye on the principles since a significant chunk of the EU's outsourcing could come to India in future, said an IT expert. Further, a number of Indian firms are expanding to the EU in a major way, he said.

The CEBS has proposed a three-tier classification of activities:

*Strategic or core activities, which cannot be outsourced.

*Non-strategic but material activities, which should be pre-notified to the supervisory authority.

*Non-strategic and non-material activities, which do not have to be pre-notified, but for which the institution must remain responsible for ensuring supervisory guidelines are still met.

The CEBS believes that all outsourcing arrangements should be set out in a "formal and comprehensive" written agreement. Key areas to be covered in this written agreement include a clear definition of the operational area to be outsourced; provisions for continuous monitoring and rights of access to be granted to the outsourcing institutions so that they may swiftly take corrective measures on their own behalf, if necessary.

The CEBS is keen to promote these principles as well as convergence across the financial services sectors and to aim for an international regulatory definition of outsourcing and commonly accepted principles, information on the Web says.

According to Mr Murali Neelakantan, Solicitor (England and Wales) and Advocate (India), Simmons & Simmons, a UK-based law firm, "This (the principles) would be a real measure of how clued in the Indian IT and BPO industry is to the market place and how well they know their customers' business. In the end, these principles will affect the suppliers, and if they do not know of it, they cannot be prepared. If they do not respond, they will lose an opportunity to work with their customers and influence the decision-making. I see it as a great opportunity to empathise with the customer's business and educate the regulator on the real issues in outsourcing."

Says Mr Amitabh Shrivastava, Director Operations- Chennai, Xansa India, which is a subsidiary of the UK-based Xansa Inc and has a large offshore presence in India, the paper is a commendable first step towards setting up the standard principles for the outsourcing industry. These principles, though "evolutionary" in nature, could serve as a basis for a regulatory definition of outsourcing at a global level.

The CEBS' principles allows for a regulatory and consistent approach of supervisors' practices at the EU level. It also provides useful policy guidelines, which will help bring about a higher level of standardisation and professionalism to the sector. However, a lot more details need to be thought about and debated upon before implementing such far-reaching policies and principles, he said.

The CEBS proposes a three-tier classification of activities, with strategic or core activities stated as ones that are not to be outsourced. "I feel that here, the definition for `strategic/core activities' should be laid out in greater detail.

"Moreover, the objective of the entire paper needs to be on standardising and defining the entire process of outsourcing rather than limiting the outsourcing possibilities."

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