3.1 Firms should meet the expectations in this SS in a manner appropriate to: their size and internal organisation; the nature, scope, and complexity of their activities; and the criticality or importance of the outsourced function, in line with the principle of proportionality.

3.2 Proportionality and the materiality of outsourcing arrangements (see Chapter 5) are separate but complementary concepts, and firms should consider the links between the two. Proportionality focuses on the characteristics of a firm, including its systemic significance. ‘Materiality’ assesses the potential impact of a given outsourcing or third party arrangement on a firm’s safety and soundness, including: its operational resilience; its ability to comply with legal and regulatory obligations; the risk that firms’ ability to meet these obligations could be compromised if the arrangement is not subject to appropriate controls and oversight; and (for insurers) its ability to provide an appropriate degree of protection for those who are or may become policyholders. Proportionality and materiality can change over time and firms should reassess both as appropriate.

Intragroup outsourcing

3.3 Intragroup outsourcing is subject to the same requirements and expectations as outsourcing to service providers outside a firm’s group and should not be treated as being inherently less risky.