The Malaysian financial landscape has undergone significant transformation over the past decade, driven by a more integrated and globalised environment, rapid technological advancements, and diverse financing needs. In response to growing competition and the need for greater flexibility in managing business changes, outsourcing is increasingly employed to enhance operational efficiency, reduce costs, and achieve strategic objectives. Financial institutions are also leveraging expertise within financial groups and realising potential group synergies by outsourcing a broader range of internal processes and business functions to their affiliates.
The rise of digitalisation and advancements in financial technologies has further encouraged financial institutions to adapt their business models and processes through outsourcing to gain access to, and benefit from, these technologies. This has led to increasing use of cloud service providers in recent years to improve business agility, respond more effectively to customer needs, and achieve economies of scale.
If not properly managed, outsourcing arrangements can increase risks for financial institutions and threaten their safety and soundness. A primary regulatory concern is over-reliance on service providers for activities critical to ongoing operations. Globally, as regulators implement recovery and resolution planning, extensive outsourcing-particularly within complex group structures-poses challenges to maintaining operational continuity of critical functions during recovery and resolution phases.
This document belongs to Bank Negara Malaysia (BNM). Full access to the original source is available here: https://www.bnm.gov.my/banking-islamic-banking
