Outsourcing does not take away from an NBFC’s liabilities and obligations.
the Reserve Bank of India (RBI) on 9 November 2017 notified the Directions on Managing Risks and Code of Conduct in Outsourcing of Financial Service by NBFCs
NBFCs are now required to put in place a comprehensive mechanism so as to ensure that outsourcing activities do not adversely affect their ability to fulfil their obligations to clients as well as to the regulator and the regulator’s ability to effectively supervise such an arrangement
NBFCs are precluded from outsourcing core management functions including internal audit (internal auditors may be on contract), strategic and compliance functions and decision-making functions (such as determining compliance with know your customer norms for opening deposit accounts, granting loans and managing of investment portfolio).
The directions also are likely to have an impact on smaller entities, startups and peer-to-peer lending NBFCs, which will need to revise their business plans to fulfil the specific requirements and ensure that they have in-house structure in place to service core business and risk management functions.
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