Governance of Financial Services Outsourcing: Managing Misconduct and Third-Party Risks

42 Pages Posted: 5 Sep 2018

See all articles by Joseph A. McCahery

Joseph A. McCahery

Tilburg University - School of Law; European Banking Center (EBC); Tilburg Law and Economics Center (TILEC); European Corporate Governance Institute (ECGI)

Alexander de Roode

Robeco Asset Management, Quantitative Investment Research; Netspar

Date Written: August 26, 2018

Abstract

With financial institutions increasingly outsourcing their activities, they face a record number of fraud and misconduct cases arising from third-party services. We survey financial institutions to better understand which governance mechanisms may improve the monitoring and management of third-party relationships. Overall, our results suggest that there are gaps in traditional governance arrangements. We find that financial institutions rely mainly on internal monitoring to detect fraud and that whistleblowing plays an important role in mitigating misconduct risks. Finally, we report evidence that vendor dependency and product complexity play a pronounced role in delaying termination of agreements.

Keywords: Outsourcing, financial institutions, governance, fraud and misconduct

JEL Classification: D22, D23, G20, G34

Suggested Citation

McCahery, Joseph A. and de Roode, Alexander, Governance of Financial Services Outsourcing: Managing Misconduct and Third-Party Risks (August 26, 2018). European Corporate Governance Institute (ECGI) - Law Working Paper No. 417/2018; Tilburg Law School Research Paper Forthcoming. Available at SSRN: https://ssrn.com/abstract=3241196 or http://dx.doi.org/10.2139/ssrn.3241196

Joseph A. McCahery (Contact Author)

Tilburg University - School of Law; European Banking Center (EBC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands
+31-(0)13-466-2306 (Phone)
+31-(0)13-466-2323 (Fax)

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Alexander De Roode

Robeco Asset Management, Quantitative Investment Research ( email )

Rotterdam, 3011 AG
Netherlands

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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