What Is Financial Outsourcing?

Financial service outsourcing refers to the continuous use of outsourcing service providers (which can be subsidiaries within the group or entities outside the group) to complete business activities previously undertaken by themselves. Outsourcing can be the transfer of a business (or part of a business) from a financial enterprise to a service provider for operation, or from the service provider to another service provider (ie, "subcontracting"). Financial outsourcing began in Europe and the United States in the 1970s. In order to save costs, financial institutions in the securities industry outsourced some quasi-transactional services (such as printing and storage of records). In the 1990s, driven by cost factors and technological upgrades, financial outsourcing was mainly concentrated in the IT field, involving the entire IT industry. According to statistics, 45% of the entire IT industry expenditure in 2005 was outsourcing expenditure.

Financial services outsourcing

Chinese name: Financial services outsourcing
Foreign name: financial service outsourcing

Features: Financial companies continue to use outsourced service providers
Description: Completing previously undertaken business activities

Financial outsourcing, despite IT-related outsourcing, still accounts for about two-thirds of global outsourcing. But in financial outsourcing

Develop outsourcing principles

Increasingly, global financial services institutions are handing over their original business to outsourced service providers. Industry surveys conducted by regulatory authorities have shown that financial services institutions have outsourced a significant portion of their business, and outsourcing arrangements have become increasingly complex.

Through outsourcing, financial services institutions can transfer risk management and compliance responsibilities to service providers that are not regulated and can operate offshore.

Under such circumstances, how can financial services institutions maintain confidence in their business and risk control? How do I know if my business is complying with regulatory requirements? How can these agencies show when they are questioned by the regulatory authorities that they are indeed acting according to regulations?

To answer these questions and guide regulated financial services institutions (regulated entities), the Joint Forum has established a working group to develop high-level guidelines for outsourcing.

This article explains the main issues and risks in detail, and explains the high-level principles that serve as reference standards. These principles apply to the banking, insurance and securities industries. International committees in each industry can develop more detailed and targeted regulations based on these principles.

Important role

Outsourcing is increasingly becoming a means to reduce costs and achieve strategic goals. The areas involved include: information technology (such as application development, programming, and decoding), professional operations (such as certain financial and accounting fields, back-office operations and processing, management activities), and execution of contract functions (such as customer service centers). Industry reports and regulatory investigations show that in the process of arranging outsourcing by financial companies, other companies (including related companies and service providers within the company group) play an important role.

Risk and prevention

The functions and businesses of a regulated entity can be performed in multiple ways, and related functions can be split into product systems

Outsourcing refers to the continuous use of an outsourced service provider (either a subsidiary entity within the group or an entity outside the group) to complete business activities previously undertaken by itself.

Outsourcing can be the transfer of a business (or part of a business) from a regulated entity to a service provider for operation, or from a service provider to another service provider (sometimes referred to as "subcontracting").

When supervised entities apply the high-level principles of outsourcing to specific outsourced businesses, the following issues should be considered: First, they should be applied based on the importance of the outsourced business to the business of the regulated entity. Second, the affiliation or other relationship between the outsourced entity and the service provider. When the outsourcing principle needs to be applied to subsidiary entities, appropriate modifications can be made to reflect the differences in risks of the group's internal outsourcing business. Third, whether the service provider is supervised by an independent regulatory authority.

By this definition, outsourcing does not include purchase contracts. "Buy" is defined here as the acquisition of services, goods or equipment from a supplier, but the buyer does not transfer property information related to the customer or undisclosed information related to its business activities.

A regulated entity is an agency authorized by a regulatory authority to engage in regulated activities. The principles proposed in this article are aimed at such entities.

An outsourcing service provider (or service provider or third party) refers to an entity that undertakes outsourcing business on behalf of a regulated entity.

A supervisory authority is any organization that authorizes a regulated entity to engage in any regulated business and regulates that business.

Financial Services Outsourcing International

Financial institutions have been outsourcing business for many years. For example, since 1970, financial institutions in the securities industry have outsourced some quasi-transactional businesses (such as printing and storing records) in order to save costs.

In the 1980s and 1990s, driven by cost factors and technological upgrades, the scale of outsourcing transactions was considerable and involved the entire IT industry.

Subsequently, outsourcing appeared in more strategic areas such as human resources. During the same period, a new form called Business Process Outsourcing (BPO) emerged, which is an end-to-end business chain outsourcing. In BPO, the relationship between financial institutions and service providers has also changed from traditional service provision to strategic cooperation.

Another trend in outsourcing is "offshoring", which means outsourcing business overseas. Many multinational companies try to improve the overall efficiency of their institutions by establishing offshore transaction and service centers. In addition to outsourcing business to service providers, financial institutions will also hand over some business to overseas affiliates.

Table 1 shows the number of financial institutions and their personnel in outsourcing operations in India.

Table 1 Several financial institutions engaged in outsourcing in India (2003)

the company	Staff size ( person )	the company	Staff size ( person )
ABN Amro	Over 300	American Express (Amex)	More than 1000
Jinsheng Insurance (Axa)	380	Citigroup	3000
Deutsche Bank	500	General Company (GE)	11000
HSBC Group (HSBC)	2000	JP Morgan Chase	480
Mellon Financial	240	Merrill Lynch	350
Standard Chartered	3000

Source: "Offshore and Cross-Border Outsourcing of Banks" report by Deloitte Accounting Firm at the Fed Board meeting (March 20, 2004).

Financial Services Outsourcing China and Southeast Asia

The Analysis Report on China's Financial Outsourcing Industry Market Outlook and Investment Strategic Planning shows that there is evidence that China, Malaysia and the Philippines are also considered as ideal regions for outsourcing.

According to a 2004 report from Deloitte & Touche, offshore business will continue to grow for the first decade of this century. The report estimates that about 76% of all financial services companies in 2003 had offshore institutions, compared to only 29% in 2002. The report predicts that the output value of the offshore business market in 2005 will reach US $ 210 billion, and in 2010 it will reach US $ 400 billion, accounting for 20% of the total industry output value.

The report states that the percentage of large companies with offshore operations is significantly higher than that of small companies; more and more companies are establishing their own offshore operations.

The growth of offshore business has created the need to monitor "national risk", that is, after a financial institution outsources its business to a service provider in another country (region), it needs to monitor the government, policy, Economic and legal conditions; appropriate emergency plans and exit strategies should also be developed. In addition, an agency industry should consider the issue of business continuity, that is, how to quickly transfer outsourced business back to China in extreme cases.

China's first financial services outsourcing project

In 2005, the China IT industry tycoon, Digital China, began to plan a strategic transformation. Dong Qiqi, then president of the financial company, was responsible for

Director Zhou Yi implemented it. Introduce foreign mature financial service outsourcing concepts, and combine with the financial development status of Mainland China to make a complete set of localized financial service outsourcing modules.

In September 2006, Digital China signed a contract with Ningxia Rural Credit Cooperative (Ningxia Yellow River Rural Commercial Bank) to initiate the first case of China's domestic financial service outsourcing project.

Digital China-Ningxia Rural Credit Cooperative Signing Ceremony Brief description of the project: The project cooperation period is five years and six months. During this period, Digital China is responsible for the construction of the bank card system, call center, bank card system, bank card business training, bank card system construction, and bank card of Ningxia Rural Credit Cooperative. Transaction processing, bank card error account processing, 200 ATM deployment, 200 POS laying and other related bank card business. During the period, the business income generated by the bank card belongs to Digital China. After the contract expires, the bank card system, ATM and POS are Belongs to Ningxia Rural Credit Cooperative. ^[1]

Personnel composition: The members of the bank card department are composed of Ningxia Rural Credit Cooperative and Digital China.

When the Bank Card Department was established in 2006:

General Manager of Bank Card Department: Wu Wenjuan

Bank Card Department Marketing Manager: Sun Zhengguo

Bank Card Department General Manager: Harada

Bank Card Department Business Manager: Li Le

Other founders of the project:

Digital Bank Card Project Director of China: Zhou Yi

Director of Digital China Xi'an Operation Control Center: Wang Jianghong

Digital China Xi'an Operation Control Center: Li Yang, Zhang Yuqin

Digital China Xi'an Reconciliation Center: Li Xuemei, Zhou Wen

Digital China Xi'an Call Center: Teng Pin'e, Yao Haiou, Wang Yuanyuan, He Xiaoying, Zhang Yaqian

Digital China Xi'an R & D Center Card Project: Gao Lei, Liu Ye, Yao Dongdong, Zhu Jianzhong

Ningxia Rural Credit Cooperative R & D Department: Guo Wangang, Yang Haiyun, Meng Jiguo, Zhang Han, Bao Ruifeng, Zhang Libo, Sun Xiaowu, Wu Hujun, Xu Haitao, Wang Xudong

Card-like After one year of complicated approval procedures, arduous joint system development and localization, the partners successfully issued a card (Ningxia Rural Credit Cooperative Yellow River Debit Card) on September 17, 2007, which proved the fact that financial services outsourcing in China feasibility. It has created a precedent for the overall outsourcing of financial services outsourcing in China, marking that China has officially entered the era of a more open overall outsourcing of financial services outsourcing.

The overall outsourcing projects of China's financial services outsourcing are: (as of May 2010)

Ningxia Rural Credit Cooperative (Ningxia Yellow River Rural Commercial Bank) Service provider: Digital China

Ningxia Bank Service Provider: China UnionPay

Shanxi Jinzhong Commercial Bank Service Provider: Digital China