The US Federal Reserve has issued new guidelines in the beginning of this month, i.e. in Dec’13 on the outsourcing of business functions at financial companies and banks which could lead to greater due diligence and oversight in the biggest market for Indian technology companies.
The new guidelines issued are very comprehensive, as they cover many areas related to outsourcing and vendor risk management which leads to the directors and senior management of the US financial services companies to be very responsible.
Indian outsourcing companies will comply with most of the requirements but after releasing of the new guidelines, these outsourcing companies will be required to review their risk management strategy, risk management processes and business continuity arrangements and further strengthen their controls.
These guidelines have some outcome which is expecting by the Indian outsourcing companies such as more demanding contractual requirements, in-depth due diligence process and greater oversight and monitoring by their US clients.
There are few technology companies from India such as Infosys, Tata Consultancy Services and their US-based rival Cognizant Technology Solutions who are having their most of the operations in India, generate their maximum revenue from banks and financial services.
It is estimated that in 2014, banks based in North America may spend $59.4 billion (Rs 3.6 lakh crore) on technology services, indicates 4.4 percent increase over this year.
According to the CEO of outsourcing advisory Everest Group, he said that they are already aware of the number of large financial institutions who have taken step to re evaluate the degree to which they use third parties and he also said that they will trust these new guidelines and also believe that these guidelines will push them further down that path.
The new guidelines include technology, valuation services, other higher value outsourcing business, govern mortgage processing and these are the things which Indian firms are trying to build. The US Federal reserve sees concentration risk which arises from services or products that are being provided by the limited number of companies or concentrated in a limited geography.
The large experienced outsourcers like tier-I banks have always considered these risks, but the thing is that now the board of directors are more responsible which would increase the level of due diligence.