Question

When trust operations are outsourced, what is the primary reason that a serviced institution should continue to monitor a servicer's financial condition, audit reports, and compliance with performance standards?

a. Fiduciary liability and most of the responsibility for the accuracy and security of customer accounts remain with the serviced institution, not the servicer.
b. Strong servicer performance would justify the serviced institution's discontinuing insurance coverage for the trust errors and omissions (E&O).
c. At least a minimal level of ongoing monitoring should be conducted to avoid examiner criticism about noncompliance with SR 00-4.
d. Continuous monitoring of the servicer would strengthen management of the serviced institution's credit risks and market risks.

Answer 1

The primary reason that a serviced institution should continue to monitor a servicer's financial condition, audit reports, and compliance with performance standards when trust operations are outsourced is fiduciary liability and most of the responsibility for the accuracy and security of customer accounts remain with the serviced institution, not the servicer.

Step-by-step explanation:

The primary reason that a serviced institution should continue to monitor a servicer's financial condition, audit reports, and compliance with performance standards when trust operations are outsourced is option a. Fiduciary liability and most of the responsibility for the accuracy and security of customer accounts remain with the serviced institution, not the servicer.

This means that while the servicer may be handling the actual operations, the serviced institution is still ultimately responsible for the accuracy and security of customer accounts.

By monitoring the servicer's financial condition, audit reports, and compliance with performance standards, the serviced institution can ensure that the servicer is meeting the necessary requirements to protect customer accounts.