AI Outsourcing Compliance Checklist

Section I: Proportionality

1. Have you considered the principle of proportionality when implementing your outsourcing arrangements? (Ensure that the size, complexity, and risks of outsourcing are in line with your organization’s capacity and objectives. Proportionality helps avoid over-complication or under-preparation in your outsourcing arrangements.)
2. Have you taken into account the complexity of outsourced functions, associated risks, and the potential impact on your business continuity? (Consider how complex the outsourced function is, the risks involved, and the potential disruptions to business if these functions fail. Proper assessment ensures that outsourcing doesn’t negatively affect your operations.)

Section II: Assessment of Outsourcing Arrangements

1. Have you determined whether an arrangement with a third party qualifies as outsourcing? (Clarify whether the relationship is truly outsourcing, as this affects the legal and regulatory requirements that apply to the arrangement.)
2. Have you assessed whether the outsourced function is performed regularly by the service provider and whether this function could be performed by your organization? (Evaluate if the outsourced function is core to the third-party's operations and if your organization is capable of performing it, as this helps in understanding risk exposure and decision-making.)
3. Have you excluded functions that are not considered outsourcing, such as infrastructure services or legally required services? (Identify services that are excluded from outsourcing regulations, such as non-strategic infrastructure or legally mandated services, to avoid unnecessary compliance efforts.)

Section III: Critical or Important Functions

1. Do you consider a function critical or important if its failure would compromise the robustness or continuity of your AI services? (Evaluate if any outsourced function is crucial to your service's integrity or continuity. Critical functions are subject to higher scrutiny and risk management.)
2. Does the outsourcing involve operational tasks within internal control functions that could impact their effectiveness? (Determine whether outsourcing internal control functions could weaken your organization’s ability to monitor and manage risks effectively.)
3. Does the outsourcing of AI activities or services require authorization from the competent authority? (Certain high-risk activities, especially related to AI, may require formal authorization from relevant authorities before outsourcing. Ensure compliance with applicable regulations.)
4. Have you assessed factors such as the impact on operational resilience, business continuity, and legal compliance? (Consider how outsourcing may affect your organization’s operational resilience, continuity, and compliance with legal requirements. This is essential for long-term viability.)
5. Have you considered the impact on your clients, overall exposure to the same service provider, and the scalability of outsourcing? (Analyze how the outsourcing arrangement affects clients and consider the risk of relying too heavily on one service provider. Ensure scalability as your business grows.)
6. Have you assessed the possibility of transferring or reintegrating the outsourced function? (Consider whether it would be feasible to bring the function back in-house or switch providers if needed, particularly in case of service failure.)
7. Have you considered data protection and confidentiality risks? (Ensure that adequate measures are in place to protect client and business data and maintain confidentiality, especially when outsourcing sensitive activities.)

Section IV: Sound Governance Arrangements and Third-Party Risk

1. Have you established an organization-wide risk management framework covering all risks caused by third-party arrangements? (Implement a framework that covers all risks introduced by third-party arrangements, including operational, compliance, and financial risks. This ensures a consistent approach across the organization.)
2. Have you identified and managed all risks arising from third-party arrangements, whether or not they qualify as outsourcing? (Proactively identify and manage all risks associated with third-party relationships, whether they qualify as outsourcing or not, to ensure no risk is overlooked.)

Section V: Sound Governance Arrangements and Outsourcing

1. Does your management body remain fully responsible and accountable for all regulatory obligations, including outsourcing? (Ensure that your management body retains ultimate responsibility for compliance with regulations, including those related to outsourcing, even if the activities are delegated to a third-party.)
2. Have you clearly assigned responsibilities for documenting, managing, and monitoring outsourcing arrangements? (Assign clear responsibilities for documenting and managing outsourcing arrangements to ensure proper oversight and accountability.)
3. Have you allocated sufficient resources and designated a person responsible for monitoring outsourcing risks? (Allocate the necessary resources, including human and financial, to manage and monitor outsourcing risks effectively. Designating a responsible person ensures accountability.)
4. Do you ensure that your organization does not become a "shell entity" and maintains sufficient substance to meet licensing conditions? (Ensure that your organization maintains the necessary operational substance and does not become overly dependent on outsourcing, which could jeopardize licensing and regulatory compliance.)
5. Are you able to make decisions related to your business activities and maintain order? (Ensure that outsourcing does not undermine your ability to make critical decisions and maintain control over business operations.)
6. Have you implemented data confidentiality measures and maintained proper information flow with suppliers? (Data confidentiality is vital, so ensure that clear measures are in place to safeguard sensitive data and establish proper communication channels with suppliers.)
7. Can you transfer, reintegrate, or terminate activities dependent on an outsourced function if needed? (Ensure that you can bring outsourced activities back in-house or switch providers if necessary to mitigate any disruptions or failure in service.)
8. Do you process personal data in accordance with GDPR? (Ensure that all outsourced functions comply with GDPR requirements for processing personal data to protect user privacy and avoid legal penalties.)

Section VI: Outsourcing Policy

1. Has your outsourcing policy been approved by your management body? (Your management body should approve the outsourcing policy to ensure that it aligns with the organization’s goals and regulatory obligations.)
2. Does your policy cover responsibilities, planning, implementation, monitoring, documentation, and exit strategies? (Ensure that your outsourcing policy comprehensively addresses all key aspects, including planning, execution, monitoring, documentation, and exit plans for all outsourced functions.)
3. Does your policy differentiate between various categories of outsourcing? (Your policy should clearly differentiate between different types of outsourcing arrangements (e.g., critical vs. non-critical) to tailor risk management and compliance strategies appropriately.)
4. Does your policy identify the potential impacts of critical outsourcing on your risk profile and oversight capability? (Identify and assess the risks associated with critical outsourcing arrangements and their potential impact on your organization’s risk profile and ability to maintain oversight.)

Section VII: Conflicts of Interest

1. Have you identified, assessed, and managed conflicts of interest related to your outsourcing arrangements? (Evaluate whether any conflicts of interest exist between your organization and the service provider that could affect the quality or fairness of the outsourcing arrangement.)
2. Are the conditions for outsourced services set at market prices, including within a group? (Ensure that outsourcing arrangements, including within your corporate group, are conducted at market prices to avoid unfair advantages or conflicts of interest.)

Section VIII: Business Continuity Plans

1. Do you have appropriate business continuity plans for critical outsourced functions? (Create contingency plans for the continuation of critical outsourced functions in the event of disruptions to minimize operational impact.)
2. Do these plans consider deteriorating service quality, supplier insolvency, and political risks? (Your business continuity plans should account for potential risks such as service quality deterioration, supplier financial issues, and geopolitical events.)

Section IX: Internal Audit Function

1. Does your internal audit function cover outsourced activities? (Internal audits should assess the performance, compliance, and risk management of outsourced functions to ensure proper oversight and control.)
2. Does your audit verify the implementation of your outsourcing policy, assessment of function criticality, and adequacy of risk assessment? (Ensure that internal audits review the adequacy of your outsourcing policy and risk assessments to ensure proper governance and compliance.)

Section X: Documentation Requirements

1. Do you maintain an updated register of all your outsourcing arrangements? (Keep an up-to-date, comprehensive register of all outsourcing agreements to ensure transparency and compliance with internal and external regulations.)
2. Does this register include essential information such as references, dates, function descriptions, service provider details, and data locations? (Ensure that the register is detailed, covering all relevant information for each outsourcing arrangement, including dates, service descriptions, and where the data is stored.)
3. For critical functions, does your register include information on outsourcing usage, risk assessments, approvals, applicable laws, audits, and subcontractors? (For critical outsourcing arrangements, include additional details in the register such as risk assessments, audit records, and legal compliance to ensure full transparency.)
4. Are you prepared to provide information to competent authorities and inform them of significant changes? (Ensure you have a system in place to provide authorities with information regarding outsourcing arrangements, including any major changes that could affect compliance or risk.)

Section XI: Pre-Outsourcing Analysis

1. Before outsourcing, have you assessed whether the function is critical, whether supervision conditions are met, identified risks, and performed due diligence on the service provider? (Perform thorough due diligence before outsourcing to ensure the function is appropriate for outsourcing and that all potential risks are evaluated. This includes ensuring proper supervision is possible.)

Section XII: Outsourcing Agreement

1. Is there a written outsourcing agreement between your organization and the service provider? (Ensure that every outsourcing arrangement is formalized in a written agreement that outlines all terms and conditions of the relationship.)
2. Does the agreement clearly outline the roles, responsibilities, and obligations of both parties? (Clearly define the roles and responsibilities of both your organization and the service provider in the agreement to prevent misunderstandings or mismanagement.)
3. Does the agreement include provisions for the protection of data and compliance with GDPR? (Ensure that data protection and privacy measures, including adherence to GDPR, are explicitly covered in the agreement to safeguard client and business data.)
4. Does the agreement address business continuity, termination rights, and dispute resolution mechanisms? (Include clauses that ensure business continuity and define clear rights and mechanisms for termination and dispute resolution in case issues arise.)
5. Have you ensured the agreement provides for the right to audit and inspect the service provider? (Ensure the agreement includes provisions for your organization to audit and inspect the service provider's operations to ensure compliance with all terms.)

Section XIII: Supervision and Access Rights

1. Do you ensure that your organization retains full and unrestricted access to all relevant data and business premises of the service provider? (Retain the right to access key data and premises to monitor the service provider’s performance and ensure that they are meeting all contractual obligations.)
2. Have you retained the right to audit and monitor the service provider’s performance? (Ensure you can regularly audit and monitor the service provider’s operations to confirm that they are fulfilling their contractual and regulatory obligations.)
3. Have you ensured that competent authorities retain full access to all necessary information and premises? (Make sure that relevant authorities have the right to access necessary information and premises in case they need to verify compliance with regulations.)

Section XIV: Sub-Outsourcing

1. Have you explicitly prohibited sub-outsourcing of critical or important functions without prior approval? (Ensure that sub-outsourcing of critical or important functions is strictly prohibited without prior written consent to maintain control over the quality and security of outsourced activities.)
2. Does the service provider include provisions in their agreements with subcontractors to ensure compliance with your organization’s requirements? (Ensure that the service provider’s agreements with subcontractors require compliance with your organization’s standards and requirements to ensure consistency in performance.)
3. Have you evaluated the risks associated with sub-outsourcing arrangements? (Conduct a risk assessment of any potential sub-outsourcing arrangements to ensure that they do not introduce new or unforeseen risks to your operations.)

Section XV: Data Location and Protection

1. Have you ensured that all data related to outsourced activities is stored and processed in a compliant manner? (Ensure that data processing and storage are compliant with relevant laws, including data protection regulations such as GDPR.)
2. Have you implemented measures to address risks related to the location of data (e.g., cross-border data transfers)? (Implement measures to address risks associated with data location, such as ensuring compliance with data protection laws when transferring data across borders.)
3. Is the service provider contractually obliged to comply with data protection laws, including GDPR? (Ensure that the service provider is legally obligated through the contract to comply with data protection regulations, particularly GDPR, to safeguard personal data.)

Section XVI: Risk Assessment

1. Have you conducted a thorough risk assessment of all outsourcing arrangements? (Perform a comprehensive risk assessment to identify potential risks related to each outsourcing arrangement, including operational, legal, and financial risks.)
2. Does your risk assessment cover operational, legal, regulatory, and reputational risks? (Ensure that the risk assessment addresses all potential risks, from operational disruptions to legal and reputational risks, to mitigate adverse impacts.)
3. Do you regularly review and update the risk assessment for each outsourced function? (Regularly review and update the risk assessments for outsourced functions to adapt to changing circumstances and to ensure ongoing risk mitigation.)

Section XVII: Monitoring and Reporting

1. Have you established a process for ongoing monitoring of the service provider’s performance? (Implement a process for continuous monitoring to ensure that the service provider meets agreed-upon performance metrics and compliance standards.)
2. Do you regularly evaluate the service provider’s compliance with contractual obligations and regulatory requirements? (Regularly assess whether the service provider is adhering to the terms of the contract and meeting regulatory requirements to ensure compliance and mitigate risk.)
3. Have you established internal reporting mechanisms to track the status of outsourced arrangements? (Set up internal reporting systems to track and review the performance and status of outsourcing arrangements, ensuring they align with organizational goals.)

Section XVIII: Exit Strategies

1. Do you have a documented exit strategy for all critical or important outsourcing arrangements? (Develop a formal exit strategy for critical outsourcing relationships, outlining the steps for terminating or transferring functions if necessary.)
2. Does your exit strategy include plans for transferring or reintegrating the outsourced function? (Include detailed plans for transferring or reintegrating functions back into your organization or to another service provider to minimize operational disruptions.)
3. Are you prepared to minimize business disruption and operational risks during the termination or transfer of an outsourcing arrangement? (Ensure that exit strategies are designed to minimize disruption and manage risks effectively during the termination or transfer of outsourced services.)

Section XIX: Reporting to Competent Authorities

1. Do you inform competent authorities of all critical outsourcing arrangements? (Ensure that you comply with regulatory requirements by reporting critical outsourcing arrangements to the relevant authorities.)
2. Have you implemented a process to notify authorities of significant changes to outsourcing arrangements? (Establish a process to notify competent authorities of significant changes to outsourcing arrangements to maintain transparency and regulatory compliance.)
3. Are you prepared to provide all necessary information about your outsourcing arrangements to the relevant authorities? (Be prepared to provide authorities with detailed and accurate information regarding your outsourcing arrangements, especially when requested for regulatory oversight.)

Section XX: Regular Reviews

1. Do you conduct regular reviews of your outsourcing arrangements to ensure compliance with applicable regulations and internal policies? (Regularly review outsourcing arrangements to ensure that they comply with both internal policies and applicable laws, including regulatory changes.)
2. Have you established a timeline and criteria for reviewing the effectiveness of your outsourcing policy and procedures? (Create a review schedule with defined criteria to evaluate the effectiveness of your outsourcing policy and procedures, ensuring continuous improvement.)

AI Outsourcing Compliance Checklist

Introduction

Section I: Proportionality

Section II: Assessment of Outsourcing Arrangements

Section III: Critical or Important Functions

Section IV: Sound Governance Arrangements and Third-Party Risk

Section V: Sound Governance Arrangements and Outsourcing

Section VI: Outsourcing Policy

Section VII: Conflicts of Interest

Section VIII: Business Continuity Plans

Section IX: Internal Audit Function

Section X: Documentation Requirements

Section XI: Pre-Outsourcing Analysis

Section XII: Outsourcing Agreement

Section XIII: Supervision and Access Rights

Section XIV: Sub-Outsourcing

Section XV: Data Location and Protection

Section XVI: Risk Assessment

Section XVII: Monitoring and Reporting

Section XVIII: Exit Strategies

Section XIX: Reporting to Competent Authorities

Section XX: Regular Reviews