Markit, the information vendor, is teaming up with three leading banks to launch a “Know Your Vendor” database, which is calling KY3P. Barclays, HSBC and Morgan Stanley are working with Markit on the launch and will put information about their own third party vendors onto the platform, which will be delivered as a software as service via Dell Cloud Services. Dell is also going to be encouraging its third party vendors to join the platform.
According to Markit, the KY3P data hub will include standardised due diligence questionnaires, external audit capabilities and what it has called its Significant Event Notification and Tracking (SENT) function, which is designed to help firms manage industrywide events, such as major cyber-security or business continuity incidents, without duplicating their efforts.
KY3P will also host due diligence information such as financial details, stability ratings and audit reports, enabling institutions to perform their own risk assessments on third parties more effectively, said Markit.
The outsourcing of technology services has been a key trend in banking and other financial services, accelerated by the 2009 crisis that prompted banks to look at how they could cut costs by outsourcing whatever functions they could.
That impetus to outsource IT, along with legal and other services, of course, coincided with a new wave of scrutiny by regulators.The US Federal Reserve Board set the tone in December 2013 when it issued a letter to financial firms on “Guidance on Managing Outsourcing Risk.”
“If not managed effectively, the use of service providers may expose financial institutions to risks that can result in regulatory action, financial loss, litigation, and loss of reputation,” the Fed warned. In July 2014, the FCA in the UK issued some detailed guidance notes on choosing third party technology providers and regulators in other major financial marketplaces have followed with their own guidance and warnings about the risks in outsourcing and supply chain management.
Additional Information: read the Fed’s 2013 letter on outsourcing risk here. And read the FCA’s 2014 guidance notes here.
