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Offshore Outsourcing of Data Services by Insured Institutions and Associated Consumer Privacy Risks

Chart 3

Chart number 3 is titled "Forms of Offshoring and Their Associated Risks". This chart was developed by the FDIC and displays the different risk types that are associated with offshoring and displays different degrees of risk ranging from moderate on the left side to high on the right side. Arrows reach from the left side outwards towards the right for four different offshoring models in order to reflect the different degrees of risk associated with each model. The captive direct model is shown with the lesser amount of risk as reflected by an arrow reaching only slightly towards the right. The risks listed for captive direct show country risk as the biggest threat and captive direct is described as a wholly-owned foreign subsidiary. The joint venture model is then next higher-risk model and it is defined as a shared ownership of a foreign subsidiary and control issues are the concern especially if the ownership share held is less than a majority. The third-party vendor direct is the next higher-risk model and it is defined as occurring when a financial institution uses an offshore vendor and hires them directly. The associated risks for this model are all risks to varying degrees, with perhaps control risk most pronounced. The fourth model is shown as the highest potential risk and is the model known as third party vendor direct. It is subject to all risks with the potential for maximum exposure to these risks. This model occurs when a domestic third party vendor subcontracts a financial institution's work overseas.



Last Updated 6/08/04 insurance-research@fdic.gov