Does OSFI always view Outsourcing as an increased Risk? | Nexsys ...

Does OSFI always view Outsourcing as an increased Risk?

Some Federally Regulated Financial Institutions (FRFIs) are under the mistaken impression that outsourcing of business activities necessarily increases their risks and therefore OSFI frowns on such practises.

According to Roland Mechler, NEXSYS? Director of Operations, this is a myth.? ?Over the years I have spoken to a number of FRFIs who have told me that OSFI doesn?t allow them to outsource various activities such as mortgage underwriting & fulfillment, document verification or phone validation.? I am certain they were sincere, but we have found that they were dead wrong?.

2012 was a year where the name OSFI was bantered about more than usual.? OSFI?s release and subsequent enforcement of Guideline B-20 in 2012 set out new expectations for FRFIs??engaged in residential mortgage underwriting and/or the acquisition of residential mortgage loan assets in Canada?.

NEXSYS reviewed B-20 in detail and spoke with senior OSFI representatives (including the author of B-20) to get a firm understanding of the B-20 Principles to determine if outsourced services are even an option for Canadian FRFIs to satisfy the intent of B-20.

These discussions led NEXSYS to the gatekeeper of OSFI?s B-10 ?Outsourcing of Business Activities, Functions and Process?.

According to Mechler ?I always thought that Federally Regulated Entitiy?s (FREs) could outsource some activities, but in my discussion with OSFI, I was surprised to find that OSFI allows almost all services to be outsourced by a FRE provided a proper assessment of risk has been performed.???? Mechler continued, ?they even agreed that a professional outsourcing arrangement could actually decrease a FRE?s exposure to risk?.

B-20 Increased Liability ? ?independently?, ?objectively?

One of the substantial changes in B-20 is the increased responsibility and subsequent liability that is placed on?Boards?and?Senior Management?of FRFI?s in the oversight of residential mortgage practices and procedures.??Principle 1?of the guideline uses words such as??independently??and??objectively??when referring to the mitigation of risk.

Mechler suggested that this is where NEXSYS comes in.? ?We can provide FRFI Boards and Senior Management with an Arms-Length review, significantly mitigating company risk and personal liability, while saving costs and increasing efficiencies.?? He continued ?most organizations are not set up well to provide truly independent and objective analysis.? As an example, in QA analysis of defaults, some lenders use the same staff that underwrote the deal in the first place.? Where is the objectivity there??

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Read More about NEXSYS? Outsourced Services

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Document Validation and Insurance

According to Mechler, Document Validation is probably the area that makes the most sense for a Lender to outsource.? At the core of every financial transaction is the integrity of the documents that support the deal.? The issue, according to Mechler ?is that most organizations have no objective process for validating documents, and have no scalable system in place to increase their business without jeopardizing the integrity of the deal?.

NEXSYS has actually developed a document verification process that is so rigorous it is actually insured by Lloyd?s of London.? Mechler explains that ?The NEXSYS team objectively reviews elements of documents to compare expected results with actual results.? The list of items to review can be based solely on the NEXSYS? Process expectations, or it can be tailored to meet a client?s specific requests.? Our web-based software allows all notes to appear on the document along with time/date/person stamps for future auditing purposes.?

Read More about NEXSYS? Document Verification and Insurance

Do an Analysis

Mechler summarizes by saying: ?Do an analysis.? If I am a Director or a Senior Manager of an FRE or even a non-regulated Lender, it is no longer business as usual.? B-20 changed the game and if I hold that position with a Lender, B-20 just placed a whole new level of responsibility and liability on me and I am going ensure I can look into any process, any deal, any transaction, and any associated document when I want, and as frequently as I want?.

For the first time, a company is offering that sort of arms-length ?objectivity? and ?transparency?.? Mechler concludes saying:? ?Give us a call and we?ll work with you to compare your current costs/return with what we can offer?.

Source: http://www.nexsysfinancial.com/does-osfi-always-view-outsourcing-as-an-increased-risk/

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