Read the following passage and answer the questions

Outsourcing is defined as the NBFC’s use of a third party (either an affiliated entity within a corporate group or an entity that is external to the corporate group) to perform activities on a continuing basis that would normally be undertaken by the NBFC itself, now or in the future.

NBFCs have been outsourcing various activities and are hence exposed to various risks Further, the outsourced activities are to be brought within regulatory purview to protect the interest of the customers of NBFCs and to ensure that the NBFC concerned, and RBI have access to all relevant books, records and information available with a service provider. Some key risks in outsourcing are strategic risk, reputation risk, compliance risk, operational risk, legal risk, exit strategy Risk, counterparty risk, country risk, contractual risk, access risk, concentration and systemic Risk, etc. It is therefore imperative for the NBFC to outsource its activities to ensure sound and responsive risk management practices for effective oversight, due diligence and management of risks arising from such outsourced activities.

(2 Markers)