Research On The Risk Supervision Of China’s Bank Offshore Outsourcing

With the development of globalization of world economy, banking outsourcing, a popular market practice in international financial sector, has witnessed a transition from ITO (Information Technology Outsourcing) to BPO (Business Process Outsourcing). As the core of such a practice, commercial bank offshore outsourcing, while having the advantage of significantly reducing costs, optimizing internal structure and increasing efficiency, also bears huge risks. Unlike risks in general terms, bank offshore outsourcing is facing the risk in the regulation of both finance and outsourcing. Such a risk is caused by both the market and government failures under the situation of asymmetric information. With the background of increasing openness of China’s financial market and a slow-down of the world economy, ensuring the efficient and safe operation of banking offshore outsourcing in order to reduce risks and maintain safety of China’s financial sector has become the ultimate goal of regulation. Risk control during offshore outsourcing by banking sector is grossly inadequate in China. Related legislation is fragmented and disorganized. There is also a lack of systematization and completeness, all of which make it difficult to arrive at an efficient regulatory end. Therefore the author thinks it’s necessary to carefully review the risk control mechanism during the offshore outsourcing practices by commercial banks in China.This article is composed of four parts. The first part demonstrates motivation of risk control lies in both market and government failures caused by asymmetric information. The author points out risk control includes internal control and external supervision, and the latter involves various approaches connected by government regulation. Then it expounds and analyzes the basic theory of risk control, principle of moderate and equilibrium intervention, as well as principal-agent relationship. Meanwhile the author takes SOX Bill and its binding effects as a critical reference for risk control in China’s banking offshore outsourcing practice. The second part briefs the development of legislations on bank offshore outsourcing in certain foreign countries and summarizes different regulatory approaches with a focus on the offshore outsourcing models and regulatory regimes in the United States, Japan and India. The third part introduces the characteristics and defects of China’s regulatory system concerning the risk control on banking offshore outsourcing,and analyzes the disordered, fragmented legislation. The author holds the present major defects lie in the deviation of both regulatory concept and target-setting, ambiguity or vagueness of law terms and unreasonable allocation of regulatory power and responsibility. The fourth part provides suggestions on improving China’s regulatory system concerning risk control during bank offshore outsourcing, including reshaping risk control concept, achieving of equilibrium of regulation among offshore outsourcing employer, supplier, as well as external market and internal management. Since the existing practice of "separate management with separate regulation " is difficult to meet the requirement of bank offshore outsourcing risk control, it is also important to carry out a reform on regulatory agencies, which is to realize a transition from institutional regulation to functional regulation. It also needs to strengthen the regulatory procedure through a clear division of the whole chain into before, during and after the practice of bank offshore outsourcing, and based on such a division a reasonable allocation of regulatory obligations and responsibilities should be made happen. Finally it necessary to strengthen the role of the third party involvement in regulation process through drawing on SOX Act and COSO mechanism.