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Indian business process outsourcing firms servicing US banks and financial institutions will be subject to audit by The Office of the Comptroller of the Currency, US, from early 2005.
Senior executives across several financial BPO firms in Bangalore and Chennai said that the review is likely to be conducted in January-February next year.
Outsourcing and India: Complete Coverage
This follows concerns of the US regulator over outsourcing of critical financial and banking information such as customer data, pattern of advances and deposits.
Globally, outsourcing of financial services is a $15 billion business, just over 12 per cent of the total outsourcing done every year. Sources said the audit will primarily focus on information security and physical security compliance at the Indian firms and the systems in place for it.
They said that not all financial BPOs will come under the scanner. "Only those engaged in high-end transaction work, and those who manage critical databases of banks and financial institutions will be subject to the review."
Though third-party financial services are not quite as advanced as other services, several top BPO's in India have a strong presence in this segment.
They include the likes of Office Tiger, Wipro Spectramind, Progeon, ICICI OneSource, efunds and iSeva.
Despite the growing number of firms in this segment, several US based financial institution like American Express, Citibank and Standard Chartered have preferred to just offshore their back end activities to the captive units in low-cost countries such as India and not outsource them.
Industry players said that probably only those BPO's that manage/analyse loan and investment portfolios, funds management, capital earnings will be audited by the US Comptroller.
They added that, they are yet to hear formally from US Comptroller, but their principals have already alerted them.
"Typically, the US Comptroller just needs to inform our principals to inspect or audit the systems here," they added.
The Office of the Comptroller charters, regulates, and supervises all US banks, as also the federal branches and agencies of foreign banks.
It reviews banks' internal controls, internal and external audits, and compliance. It also evaluates the bank management's ability to identify and control risk.