Governance of Financial Services Outsourcing: Managing Misconduct and Third-Party Risks

Governance of Financial Services Outsourcing: Managing Misconduct and Third-Party Risks

Joseph McCahery, F. Alexander de Roode

Series number :

Serial Number: 
417/2018

Date posted :

September 06 2018

Last revised :

September 06 2018
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Keywords

  • Outsourcing • 
  • Financial institutions • 
  • governance • 
  • fraud and misconduct

With financial institutions increasingly outsourcing their activities, they face a record number of fraud and misconduct cases arising from third-party services. We survey financial institutions to better understand which governance mechanisms may improve the monitoring and management of third-party relationships.

Overall, our results suggest that there are gaps in traditional governance arrangements. We find that financial institutions rely mainly on internal monitoring to detect fraud and that whistleblowing plays an important role in mitigating misconduct risks. Finally, we report evidence that vendor dependency and product complexity play a pronounced role in delaying termination of agreements.
 

Authors

Real name: 
F. Alexander de Roode
Research Member
Tilburg University Faculty of Law and Tilburg Law and Economics Center