WASHINGTON - Federal bank and thrift regulators have issued guidelines to help institutions reduce the risks posed by outsourcing of technology services.

"Financial institutions increasingly rely on services provided by other entities to support an array of technology-related functions," regulators said in the introduction to the guidelines, which were released Nov. 28 by the Federal Financial Institutions Examination Council.

"While outsourcing to affiliated or nonaffiliated entities can help financial institutions manage costs, obtain necessary expertise, expand customer product offerings, and improve services, it also introduces risks that financial institutions should address."

The guidelines call on bank directors and senior managers to assure that when such services are outsourced, a risk assessment is performed to see what problems might arise; to do proper due diligence before selecting a provider; and to require written contracts that specifically define the responsibilities of the provider.

Bank executives are also instructed to implement a system for ongoing supervision of third-party services.

The full text is available on the Internet at www.ffiec.gov.

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