malaysia insurance guidance on complying with regulatory requirements applicable...

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MALAYSIA – INSURANCE

GUIDANCE ON COMPLYING WITH REGULATORY REQUIREMENTS APPLICABLE TO FINANCIAL SERVICES INSTITUTIONS

USING CLOUD COMPUTING (AZURE)

Last updated: November 2014

1. WHAT DOES THIS MICROSOFT GUIDANCE CONTAIN?

This guidance document provides a guide to complying with the regulatory process and requirements applicable to financial services institutions using

cloud computing. In this guidance financial services institutions means insurance companies (“ICs”). Microsoft has prepared a guidance document for

other financial service institutions which is available on request.

Sections 2 to 6 of this guidance sets out some high level information about the applicable legal frameworks governing banks’ and insurance companies’

use of cloud computing services and the regulatory process that applies.

Section 7 sets out questions in relation to outsourcing to a cloud services solution based on the laws, regulations and guidance that are relevant to the

use of cloud services. Although there is no requirement to complete a checklist like this one, we have received feedback from ICs that a checklist

approach like this is very helpful. The checklist can be used:

(i) as a checklist for ensuring regulatory compliance with the requirements set out in the laws, regulations and guidelines (listed in Section 2); and

(ii) as a tool to aid discussions with the regulator(s) (listed in Section 3), should they wish to discuss your organization’s overall approach to

compliance with their requirements.

Appendix One also contains a list of key contractual requirements based on the laws, regulations and guidance that are relevant to an IC’s use of cloud

services.

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Note that this document is not intended as legal or regulatory advice and does not constitute any warranty or contractual commitment. Instead, it is

intended to streamline the regulatory process for you. You should seek independent legal advice on your technology outsourcing project and your legal

and regulatory obligations. Please note that the scope of this document specifically does not include potentially applicable state laws, rules and

regulations.

2. WHAT REGULATIONS AND GUIDANCE ARE RELEVANT?

BNM has developed several relevant documents which ICs should bear in mind. As with banks, there are effectively different “layers” of rules that apply

depending on whether the use of Azure constitutes an “outsourcing” and, if so, whether it is significant enough to constitute a “material outsourcing”.

Even if it does not constitute an “outsourcing” or “material outsourcing”, more other general technology guidelines apply, specifically: IT Guidelines, E-

Banking Guidelines, Business Continuity Management Guidelines and Guidelines on Data Management and Management Information System as listed

below.

The relevant documents are as follows (although most of them are not available on the BNM website but we have included a hyperlink where they are):

BNM’s Guidelines on Outsourcing for Insurers.

BNM’s Guidelines on Internet Insurance.

BNM’s Guidelines on Data Management and MIS Framework for Financial Institutions.

BNM’s Guidance on Business Continuity Management (“BNM’s BCM Guidelines”).

BNM’s Guidelines on Management of IT environment.

In addition, the Financial Services Act 2013 (“FSA”) contains some relevant provisions.

3. WHO IS/ARE THE RELEVANT REGULATOR(S)?

The Bank Negara Malaysia (“BNM”)

http://www.bnm.gov.my/guidelines/01_banking/04_prudential_stds/30_gl_018_1_20110905.pdf

http://www.bnm.gov.my/documents/act/en_fsa.pdf

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4. IS REGULATORY APPROVAL REQUIRED IN MALAYSIA?

Yes.

The prior consent of BNM is only required if an IC wishes to undertake an outsourcing which is deemed to be “material” or which results in services being

provided in a location outside Malaysia whether material or not. It is prudent to assume that the use of Azure would, as a minimum, constitute an

“outsourcing”. Whether it would then constitute a “material outsourcing” would be determined on a case-by-case basis, based on an analysis of whether

the disruption of the Microsoft Cloud Services would have the potential to significantly impact the financial institution’s business operations, reputation or

profitability1. Depending on the solution you decide on, the service will likely involve data centers based outside of Malaysia.

5. IS/ARE THERE (A) SPECIFIC FORM OR QUESTIONNAIRE(S) TO BE COMPLETED?

No.

Unlike in certain jurisdictions, such as Singapore, there are no specific forms or questionnaires that an IC must complete when considering cloud

computing solutions.

6. DOES THE REGULATOR MANDATE SPECIFIC CONTRACTUAL REQUIREMENTS THAT MUST BE ADOPTED?

Yes.

BNM does specifically mandate contractual requirements that must be agreed by ICs with their service providers. These are not set out in one list in any

one place unfortunately but scattered across the different documents referred to above. Microsoft has included these points in the document which

follows in relation to the relevant issues and Appendix One contains a comprehensive list and details of where in the Microsoft contractual documents

these points are covered.

1 Relevant considerations in terms of what is constituted to be ‘material’ can be found in the BNM Guidelines on Outsourcing for Insurers, Part VIII.

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7. CHECKLIST

Key:

In blue text, Microsoft has included template responses that would demonstrate how your proposed use of Microsoft’s services would address the point

raised in the checklist. Some points are specific to your own internal operations and processes and you will need to complete these answers as well.

In red italics, Microsoft has provided guidance to assist you with the points in the checklist.

Ref. Question/requirement Template response and guidance

A. GENERAL

1. Who is the Service Provider? Please provide company

profile/background.

In case requested, details of the Microsoft corporate entity providing the

services are provided below.

The Service Provider is Microsoft Operations Pte Ltd, the regional licensing

entity for Microsoft Corporation, a global provider of information technology

devices and services, which is publicly-listed in the USA (NASDAQ: MSFT).

Microsoft’s full company profile is available here:

https://www.microsoft.com/en-us/news/inside_ms.aspx.

2. List all proposed activities and operations to be outsourced to the Service

Provider. Confirm that the outsourcing will not include ‘core activities’.

Paragraph 3.2 of the BNM’s Guidelines on Outsourcing for Insurers which

provides that ICs should not outsource core activities except in very limited

circumstances. “Core activities” are defined in Part V of those guidelines as

activities constituting insurance business; board and senior management;

internal audit and compliance functions; risk management; strategic planning

and decision making; and financial analysis.

https://www.microsoft.com/en-us/news/inside_ms.aspx

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We can confirm that the outsourced services will not involve any core

activities or any inherent banking functions such as services associated with

placement of deposits and withdrawals.

The arrangement will involve the outsourcing of certain IT functions through

the use of Microsoft’s “Azure” service, which is described in more detail here:

Azure. Amongst other things, the Azure service includes:

Compute

Data & Storage

Networking

Identity & Access Management

IT support services

B. OUTSOURCING POLICY AND RISK MANAGEMENT

3. Is senior management confident that there are effective oversight, review

and reporting arrangements in place to ensure that service level

agreements regarding standards on data quality, integrity and

accessibility are observed at all times?

Paragraph 4.12 of the BNM’s Guidelines on Data Management and MIS

Framework for Development Financial Institutions (“DFI Guidelines”). You

may want to add to the following any specific details of communications with

and involvement of senior management.

Yes.

It is essential to us is that, despite the outsourcing, we retain control over our

http://azure.microsoft.com/en-us/

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own business operations, including control of who can access data and how

they can use it. At a contractual level, we have dealt with this via our contract

with Microsoft, which provides us with legal mechanisms to manage the

relationship including appropriate allocation of responsibilities, oversight and

remedies and the relevant regulatory requirements. At a practical level, we

have selected the Azure product since it provides us with transparency in

relation to data location, access/audit and authentication and advanced

encryption controls. We have access rights (at any time) to the online

dashboards, which provide live information in relation to Microsoft’s services’

performance against performance measures. Finally, we (not Microsoft) will

continue to own and retain all rights to our data and our data will not be used

for any purpose other than to provide us with the Azure services.

4. Does your organization have a written, board-approved outsourcing risk

philosophy showing that management have considered the overall

business and strategic objectives and assessed the materiality of the

outsourcing arrangements and has approved the outsourcing?

Paragraphs 9.2, 9.4 and 9.5 of the BNM’s Guidelines on Outsourcing for

Insurers which provide that the board should approve a framework for

assessing the materiality of all existing and prospective outsourcing

arrangements. It refers to this as an ‘outsourcing risk philosophy’.

Paragraph 26.1 of the BNM’s Guidelines on Internet Insurance. BNM expects

that you will have sought Board approval in relation to the outsourcing so you

will need to confirm this here.

Yes/No

[See attached board approval.]

More details of our outsourcing risk philosophy and analysis are set out

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below.

5. Does the outsourcing risk philosophy and your business case address the

following?

(i) Identification of the activities that will not be outsourced for

strategic or internal control reasons.

(ii) Expectations of the outsourcing arrangements in terms of

contribution to your overall strategic and business objectives.

(iii) Limits on the acceptable overall level of outsourced activities.

(iv) The potential impact of the outsourced activity to the

economic or commercial value of the insurer.

(v) An assessment of whether an independent enterprise in

comparable circumstances would be likely to outsource the

activity.

(vi) Costs implication of the outsourcing arrangement (including

costs associated with internal resources required to oversee

and manage the outsourcing arrangement) relative to

anticipated benefits.

(vii) The cumulative impact, including risk concentrations, of all

outsourcing arrangements on the overall safety and

Paragraphs 9.5 and 9.7 of the BNM’s Guidelines on Outsourcing for Insurers

and paragraph 26.1 of the BNM’s Guidelines on Internet Insurance. BNM

expects you to be able to demonstrate that your outsourcing risk philosophy

and business case each of these points. Items (i) to (viii) are largely internal

matters that you will need to outline and show you have considered. Items (ix)

and (x) directly relate to Microsoft’s offering so you may find the following

helpful:

(ix) Reporting and Monitoring.

Yes.

Microsoft’s Service Level Agreement (“SLA”) applies to the Azure product.

Our IT administrators also have access to the Azure Service Health

Dashboard, which provides real-time and continuous monitoring of the Azure

service. The Service Health Dashboard provides our IT administrators with

information about the current availability of each service or tool (and history of

availability status) details about service disruption or outage, scheduled

maintenance times. The information is provided via an RSS feed.

Amongst other things, it provides a contractual uptime guarantee for the

Azure product and covers performance monitoring and reporting requirements

which enable us to monitor Microsoft’s performance on a continuous basis

against service levels.

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soundness of your business.

(viii) An assessment of key outsourcing risks, including but not

limited to the impact of the outsourcing arrangement on the

quality of your service.

(ix) Proper reporting and monitoring of the integrity and quality of

work conducted by the Service Provider.

(x) An assessment of your ability to retain control of the

outsourced activity.

As part of the support we receive from Microsoft, we also have access to a

technical account manager who is responsible for understanding our

challenges and providing expertise, accelerated support and strategic advice

tailored to our organization. This includes both continuous hands-on

assistance and immediate escalation of urgent issues to speed resolution and

keep mission-critical systems functioning. We are confident that such

arrangements provide us with the appropriate mechanisms for managing

performance and problems.

We also have extensive audit rights as detailed in section E below.

(x) An assessment of your ability to retain control of the outsourced

activity.

The handing over of certain day to day responsibility to an outsourcing

provider does present some challenges in relation to control. It is essential to

us is that, despite the outsourcing, we retain control over our own business

operations. At a contractual level, we have dealt with this via our contract

with Microsoft, which provides us with legal mechanisms to manage the

relationship including appropriate allocation of responsibilities, oversight and

remedies and the mandatory provisions required by BNM. At a practical level,

we have selected the Azure product since it provides us with transparency in

relation to data location, authentication and advanced encryption controls.

We (not Microsoft) will continue to maintain control and will own and retain all

rights to our data and our data will not be used for any purpose other than to

provide us with the Azure services.

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6. Does your organization have an outsourcing risk management program

and policies that apply to material outsourcing arrangements?

Paragraphs 9.6 and 10.1 of the BNM’s Guidelines on Outsourcing for Insurers

which provides that insurers are expected to have in place a comprehensive

‘risk management program’ that is applied to all material outsourcing

arrangements and that all decisions to outsource a material activity should be

supported by a sound business case. The business case should take into

account the potential benefits of outsourcing against risks that may arise,

having regard to all relevant prudential matters as well as short-term and

long-term implications.

There would appear to be some overlap between the risk management

program and the outsourcing risk philosophy. You will need to be able to

confirm that you have one and provide details. Specific areas that should be

covered are set out below.

7. Does your risk management program explicitly cover the management of

country risks including the following areas:

(i) Strategic risks (activities carried on by the Service Provider on its

own behalf that are inconsistent with the overall strategic goals of

the insurer; failure to implement appropriate oversight of the

Service Provider; inadequate expertise to oversee the Service

Provider);

(ii) Reputational risks (poor service by the Service Provider;

customer interaction that is inconsistent with IC’s standards;

unethical practices of the Service Provider);

Paragraph 10.2 of the BNM’s Guidelines on Outsourcing for Insurers. Many of

these areas will require detail regarding internal policies but we have included

some information in relation to Microsoft’s specific offerings where relevant to

assist where possible.

Yes.

Taking each of the areas in turn:

(i) Strategic risks. We have no reason to believe that any activities

carried out by the Service Provider on its own behalf would be

inconsistent with our overall strategic goals. To the contrary, we

have selected a Service Provider with a very strong track record

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(iii) Compliance risks (prudential and market conduct regulations not

complied with; breach of obligation to preserve customer data

confidentiality; changes in regulations not communicated to the

service provider in a timely manner);

(iv) Operational risks (technology failure, inadequate financial

capacity of Service Provider to fulfill obligations or provide

remedies/restitution; fraud or error; failure of IC to undertake

inspections of Service Provider);

(v) Exit strategy risks (over reliance on one firm to provide service;

loss of relevant skills or resources in the IC preventing it from

bringing an outsourced activity back in-house; contracts which

make a speedy exit prohibitively expensive);

(vi) Counter party risks (inappropriate credit assessments leading to

diminished quality of receivables);

(vii) Country risks (political, social and legal climates may create

added risk and business continuity planning can be more

complex);

(viii) Contractual risks (inability to enforce the contract);

(ix) Information risks (reliance on information by Service Provider that

may be materially inaccurate; delay in providing timely data and

information to IC or regulator; confidentiality of commercially

and experience of understanding the requirements of financial

institutions. We are also very confident that the contractual

protections and nature of the service offering enable us to have

appropriate oversight of the Service Provider and tools which are

very easy to use to ensure this oversight as opposed to

demanding the development of new skillsets and high levels of

expertise in order to manage it on our side. Microsoft will not have

interactions with customers. The strategic risks in our view are

therefore low.

(ii) Reputational risks. Again, we see the risks as very low since

we have undertaken a very thorough due diligence process and

chosen a world-class and highly experienced Service Provider

who is able to provide contractually backed up assurances of

quality of service. We also have numerous protections in the

contract itself in order to monitor the service performance and

take action in the event that any issues arise.

(iii) Compliance risks. We are not outsourcing core business

activities. In that respect the risks of market conduct regulations

not being complied with purely as a result of these outsourced

services are very low. As detailed in section F, there are very

strong security arrangements and safeguards in place to prevent

any damage to customer data confidentiality.

(iv) Operational risks. The service provides high SLA (as defined

above) commitments but also ensures that a raft of different

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sensitive/customer information may be compromised);

(x) Concentration risks (reliance on one Service Provider for multiple

activities);

(xi) Due diligence of the Service Provider;

(xii) Service Agreements;

(xiii) Contingency Plans; and

(xiv) Monitoring and control.

safeguards and arrangements are in place to prevent and

minimize the impact of any technology failure. Microsoft is subject

to very high international auditing standards in this regard which

provide us with a great deal of comfort. The size and resources

that Microsoft has in place also mean that we do not foresee risks

in relation to the adequacy of Microsoft to fulfill obligations or

provide remedies and restitution. The nature of the services that

are being outsourced also mean that there are low risks of fraud

or error. In relation to risks in respect of our failure to undertake

inspections (for practical or cost considerations) we have

assurance in the fact that Microsoft is also subject to its own

regular reviews as well as independent auditing by a third party –

the reports of which are made available to us.

(v) Exit strategy risks. Our contract with Microsoft provides various

opportunities to terminate the service even at short notice as well

as contractual obligations on the part of Microsoft to enable the

transfer of services to another service provider or back in-house.

These are not services which would commonly be provided by

any IC in-house in any event however.

(vi) Counter party risks. We do not see any risks in relation to

inappropriate credit assessments given the nature of the services

being outsourced.

(vii) Country risks. We carefully considered the location risks

relevant to the service. We are comfortable that the risks are low

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for several reasons. First, Microsoft informs us that it takes a

regional approach to hosting of Azure data. For customers like us

with a presence in the Asia-Pacific region, the applicable Azure

services will be hosted out of Microsoft’s highly-secure data

centers that have been selected by Microsoft taking into careful

account the country and socio-economic factors. Second, we

took into account that the Microsoft data centers have been built

in seismically safe zones. Environmental controls have been

implemented to protect the data centers including temperature

control, heating, ventilation and air-conditioning, fire detection and

suppression systems and power management systems, 24-hour

monitored physical hardware and seismically-braced racks.

These requirements are covered by Microsoft’s ISO/IEC 27001

accreditation for Azure. Azure offers data-location transparency

so that the organizations and regulators are informed of the

jurisdiction(s) in which data is hosted. We are confident that

Microsoft’s data centers offer extremely stable political and socio-

economic environments with robust and transparent legal

frameworks. Microsoft data center locations are made public on

the Microsoft Trust Center

(viii) Contractual risks. We are not concerned regarding any inability

to enforce the contract. The contract contains various remedies

including service credits and also the ability for us to terminate

the services quickly and easily.

(ix) Information risks. We do not foresee risks connected with

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inaccurate information provided by the Service Provider given the

nature of the services that are being provided. Further, in relation

to any information that is provided to us by Microsoft, we have

assurances in the fact that they are subject to independent audit

and international standards and also that BNM has audit rights.

Microsoft’s service ensures the provision of real-time information

via their dashboard and various protections detailed elsewhere in

this document to ensure the protection of commercially sensitive

and customer information.

(x) Concentration risks. We are not placing undue reliance on one

service provider for multiple activities in making this outsourcing.

The arrangement is for the provision of certain IT services only

and not of the nature that would usually be split between different

service providers.

(xi) Due diligence of the Service Provider. See section C below.

(xii) Service Agreements. See section D below.

(xiii) Contingency plans. See section G below.

(xiv) Monitoring and control of outsourcing. See section B5 above.

C. SERVICE PROVIDER SELECTION CRITERIA & DUE DILIGENCE

8. Is the selection process of the Service Provider and its sub-contractors, if Paragraph 10.4 of the BNM’s Guidelines on Outsourcing for Insurers which

provides that appropriate due diligence is expected to be conducted by

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any, formally defined and documented? insurers prior to the selection of service providers. Paragraph 15(a), Part II of

the BNM’s Guidelines on Management of IT Environment states that due

diligence should be adequately carried out to review and assess outsourcing

viabilities, capabilities, reliabilities, expertise and track records before being

approved by the board of directors.

Yes.

The selection process was formally defined and documented. It covered the

service provider’s:

financial soundness;

reputation;

managerial skills

technical capabilities; and

operational capability and capacity in relation to the services to be

performed.

[Please see the attached documentation for further information.]

9. Did your selection criteria consider the following? Are there any other

objective criteria that you considered?

(a) Capabilities, expertise, track records, experience, technical

This is covered in several places: paragraph 10.5 of the BNM’s Guidelines on

Outsourcing for Insurers; paragraphs 10.4 and 15(a); Part II of the BNM’s

Guidelines on Management of IT Environment; paragraph 1(d), Part IV of the

BNM’s Guidelines on Management of IT Environment; paragraph 1(d), Part IV

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competence and adequacy of human resource capabilities of the

Service Provider to perform the specified activity to be

outsourced.

(b) Service Provider’s understanding of your organization’s strategic

and business objectives in relation to the specific activity

outsourced.

(c) Financial strength and resources of the Service Provider (based

on recent audited financial statements and other relevant

information), including the consideration of the extent of the

Service Provider’s liabilities and financial ability (i.e., professional

indemnity insurance coverage) to compensate your organization

for errors, negligence and other operational failures.

(d) Business reputation, complaints, regulatory infringements and

pending or potential litigation of the Service Provider.

(e) Compatibility with your organization in terms of business

objectives, human resource policies, service philosophies and

business culture.

(f) Security and internal controls, standards, policies and

procedures.

(g) Business resumption and contingency plans including disaster

recovery capabilities.

of the BNM’s Guidelines on Management of IT Environment; and paragraph

15(b), Part II of the BNM’s Guidelines on Management of IT Environment.

Yes.

We followed a rigorous review and selection process. Set out below are the

specific areas we considered and why we decided on Microsoft:

a. Capabilities, experience and track record. Microsoft is an industry

leader in cloud computing. Azure was built based on ISO/IEC 27001

standards and was the first major business productivity public cloud

service to have implemented the rigorous set of global standards covering

physical, logical, process and management controls. 40% of the world’s

top brands use Azure. We consulted various case studies relating to

Azure, which are available on the Microsoft website and also considered

the fact that Microsoft has amongst its customers some of the world’s

largest organizations and financial institutions.

b. Service Provider’s understanding of our objectives. We have

conducted detailed discussions with Microsoft and are confident that they

understand our business and objectives. As set out above and below,

their extensive experience and reputation in helping other financial

institutions also helps us to be confident in this decision.

c. Financial strength and resources. Microsoft Corporation is publicly-

listed in the United States and is amongst the world’s largest companies

by market capitalization. Microsoft’s audited financial statements indicate

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(h) Ability of the Service Provider to comply with the relevant

regulatory requirements applicable to your organization (factors

that could be considered include the Service Provider’s

experience in regulated financial service industries).

(i) Reliance on and previous experience in dealing with sub-

contractors.

that it has been profitable for each of the past three years. Its market

capitalization is in the region of USD 280 billion. Accordingly, we have no

concerns regarding its financial strength and ability to compensate us for

failures.

d. Business reputation, complaints, regulatory infringements. As set

out above, Microsoft has a very strong international reputation and

experience. There are no complaints or regulatory infringements. In fact,

the European Union’s data protection authorities have found that

Microsoft’s enterprise cloud contracts meet the high standards of EU

privacy law. Microsoft is the first – and so far the only – company to

receive this approval.

e. Compatibility with our organization. We have conducted detailed

discussions with Microsoft and are confident that they understand our

business and that we will be able to work well with them.

f. Security and internal controls. Microsoft is an industry leader in cloud

security and implements policies and controls on par with or better than

on-premises data centers of even the most sophisticated organizations.

We have confidence in the security of the solution and the systems and

controls offered by Microsoft. In addition to the ISO/IEC 27001

certification, Azure is designed for security with controls for encryption of

data at rest and security sockets layer (“SSL”)/transport layer security

(“TLS”) encryption of data in transit. The Microsoft service is subject to

the SSAE16 SOC1 Type II audit, an independent, third party audit. In

particular, all personnel with access to customer data are subject to

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background screening, security training and access approvals. In

addition, the access levels are reviewed on a periodic basis to ensure that

only users who have appropriate business justification have access to the

systems. User access to data is also limited by user role. For example,

system administrators are not provided with database administrative

access. Microsoft offers contractually-guaranteed uptime, hosted out of

world class data centers with physical redundancy at disk, NIC, power

supply and server levels, constant content replication, robust backup,

restoration and failover capabilities, real-time issue detection and

automated response such that workloads can be moved off any failing

infrastructure components with no perceptible impact on the service, with

24/7 on-call engineering teams.

g. Business resumption and contingency plans. Microsoft offers

contractually-guaranteed uptime, hosted out of world class data centers

with physical redundancy at disk, NIC, power supply and server levels,

constant content replication, robust backup, restoration and failover

capabilities, real-time issue detection and automated response such that

workloads can be moved off any failing infrastructure components with no

perceptible impact on the service, with 24/7 on-call engineering teams.

More details regarding business resumption and contingency plans are

set out in section G below.

h. Specific financial services credentials and our business. Financial

Institution customers in leading markets, including in the UK, France,

Germany, Australia, Singapore, Canada, the United States and many

other countries have performed their due diligence and, working with their

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regulators, are satisfied that Azure meets their respective regulatory

requirements. This gives us confidence that Microsoft is able to help

meet the high burden of financial services regulation and is experienced

in meeting these requirements. We have had detailed discussions with

Microsoft regarding our business objectives and are confident that they

understand them.

i. Reliance on and previous experience in dealing with sub-

contractors. Microsoft does use sub-contractors to provide certain

ancillary assistance, but not for any critical roles. An up-to-date list of all

subcontractors used to provide the ancillary services (including exact

services) is available at http://azure.microsoft.com/en-us/support/trust-

center/. Microsoft ensures that all sub-contractors that it deals with are

subject to stringent requirements and Microsoft is experienced at

managing such relationships. If we do not approve of a subcontractor

that is added to the list, then we are entitled to terminate the affected

online services.

10. Do you have processes in place to ensure ongoing periodic due

diligence?

Paragraph 10.6 of the BNM’s Guidelines on Outsourcing for Insurers which

states that due diligence processes should continue to be conducted

periodically after the initial selection of a service provider, having regard to the

level of materiality of the outsourcing arrangement and risks associated with

the use of a particular service provider, as well as the experience with the

quality of the service performed. Generally, due diligence should be carried

out whenever there are significant changes in the circumstances of the

service provider (e.g. changes in key personnel, work procedures or systems

of the service provider) which materially affect the factors used as the basis

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for selection.

Suggested wording below. You will likely want to add to this in order to

provide details of any internal processes you have.

Yes.

We have various monitoring tools in relation to the service that enable us to

carry out continuous due diligence in relation to the service and Service

Provider. We may trigger specific reviews where there are significant changes

in the circumstances of the Service Provider and services.

In our contract with Microsoft, under the FSA, Microsoft offers us the right to

participate in the Microsoft Online Services Customer Compliance Program.

Under this Compliance Program, we are offered the following key features:

access to the controls that apply to each online service and the effectiveness

of those controls; access to data related to service operations; receipt of

notifications of changes that may materially impact Microsoft’s ability to

provide the online services; engagement with Microsoft’s subject matter

experts and external auditors; and the ability to provide suggestions to

improve the online services. Under the FSA we are also provided with access

to Microsoft’s independent third party audit reports and we have the right to

review Microsoft’s Information Security Policies, along with other information

we may reasonably request regarding Microsoft’s security practices and

policies. Finally, our regulator is also provided with a contractual right under

the FSA to examine Microsoft’s online services. We are confident that such

arrangements provide us with the appropriate level of assessment of

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Microsoft’s ability to meet our policy, procedural, security control and

regulatory requirements.

D. SERVICE AGREEMENT

See also Appendix One to this document which includes a comprehensive list of the different provisions in the various regulations in Malaysia which

require ICs to insert specific contractual provisions into their agreements with outsourcing vendors. The appendix then maps these against the

clauses of Microsoft’s agreement where these are covered.

11. Has a service agreement (“SA”) for each of the items, activities,

operations, transactions or areas to be outsourced to the Service Provider

been established?

Paragraph 10.9 of the BNM’s Guidelines on Outsourcing for Insurers.

Yes.

The written contract we have with Microsoft is in the form of an SLA which is

available at:

http://azure.microsoft.com/en-us/support/legal/sla/

12. Has the SA been reviewed by legal counsel? Paragraph 10.9 of the BNM’s Guidelines on Outsourcing for Insurers.

Microsoft recommends that you do seek legal advice on the use of cloud

computing services in relation to statutory/regulatory/common law

requirements. You will need to be able to confirm this review has been

undertaken.

Yes.

http://azure.microsoft.com/en-us/support/legal/sla/

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13. Does the SA cover the following?

(a) Nature and scope of the service provided (i.e., scope of the

relationship, frequency, content, agreed roles, responsibilities and

duties of Service Provider and location of service to be provided)

(b) Performance monitoring (i.e., includes service levels and

performance measures; liability of the service provider for

unsatisfactory performance or other breach of agreement of the

outsourced functions)

(c) Clear identification of ownership and access (i.e., ownership of

assets generated, purchased or acquired during the outsourcing

arrangements and your access to those assets)

(d) Protection of confidentiality and security of your organization and

your clients’ information (i.e. roles and responsibility, liability for

losses in the event of breach of security/confidentiality; and

requirement for immediate notification if there is a breach)

(e) Basis for compensation and fees and circumstances under which

additional charges may be imposed.

(f) Business resumption and contingency arrangements

(g) Reporting requirements (i.e., type, content and frequency of

reporting; whether the performance is met; and reporting of

incidents or events that may affect the service; testing and review

Paragraphs 10.6 and 10.10 of the BNM Guidelines on Outsourcing for

Insurers provides for the provisions that should be incorporated into the

service agreements, depending on the materiality of the outsourced activity.

Specific obligations can also be found in different places including: (i)

paragraph 1(c), Part V of the BNM’s Guidelines on Management of IT

Environment; (iii) paragraph 110 of the BNM’s BCM Guidelines; and (viii)

paragraph 111 of the BNM’s BCM Guidelines.

Yes.

Taking each of the points in turn:

(a) Nature and scope of services: The contract includes this. See

section 2 for an overview of the services which are being provided.

(b) Performance monitoring: We have a detailed SLA with Microsoft.

Microsoft provides a contractual financially-backed uptime guarantee

for the Azure product and covers performance monitoring and

reporting requirements which enable us to monitor Microsoft’s

performance on a continuous basis against service levels. Under the

service credits mechanism in the SLA, we may be entitled to a

service credit of up to 100% of the service charges. If a failure by

Microsoft also constitutes a breach of contract to which the service

credits regime does not apply, we would of course have ordinary

contractual claims available to us too under the contract.

(c) Ownership and access: We retain ownership of data at all times.

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of work done by the Service Provider; progress of work

conducted)

(h) Dispute resolution (including jurisdiction under which disputes will

be resolved).

(i) Default termination.

(j) Sub-contracting.

(k) Service Provider is subject to all applicable regulations and

guidelines including BNM’s BCM Guidelines.

(l) Requirements for ensuring the continuity of the outsourced

business function in the event of a major disruption affecting the

Service Provider’s services (including recovery time objectives

(“RTO”) and provisions for legal liability if the RTO is not

achieved).

(m) Audit rights.

(n) Prompt notification by the Service Provider of any breach of

confidentiality and liability for losses that might result from such

breach.

There are no specific hardware or other assets that are purchased on

our behalf by Microsoft as part of these services to which we would

expect or need to have ownership or access.

(d) Protection of confidentiality and security: Microsoft as an

outsourcing partner is an industry leader in cloud security and

implements policies and controls on par with or better than on-

premises data centers of even the most sophisticated organizations.

Azure was built based on ISO/IEC 27001 standards, a rigorous set of

global standards covering physical, logical, process and management

controls. This makes us confident that there are very robust security

controls in place to protect the transmission and storage of

information/data within Microsoft’s infrastructure. The following

security features are also relevant to protecting the transmission and

storage of information/data within the Microsoft infrastructure:

1. The Microsoft Azure security features consist of three parts: (a) built-

in security features; (b) security controls; and (c) scalable security.

These include 24-hour monitored physical hardware, isolated

customer data, automated operations and lock-box processes, secure

networks and encrypted data.

2. Microsoft implements the Microsoft Security Development Lifecycle

(SDL) which is a comprehensive security process that informs every

stage of design, development and deployment of Microsoft software

and services, including Azure. Through design requirements, analysis

of attack surface and threat modeling, the SDL helps Microsoft

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predict, identify and mitigate vulnerabilities and threats from before a

service is launched through its entire production lifecycle.

3. Networks within the Azure data centers are segmented to provide

physical separation of critical back-end servers and storage devices

from the public-facing interfaces. Edge router security allows the

ability to detect intrusions and signs of vulnerability. Azure uses

industry-standard transport protocols such as SSL and TLS between

user devices and Microsoft data centers, and within data centers

themselves. With virtual networks, industry standard IPsec protocol

can be used to encrypt traffic between the corporate VPN gateway

and Azure. Encryption can be enabled for traffic between VMs and

end users. Microsoft also implements traffic throttling to prevent

denial-of-service attacks.

4. From a people and process standpoint, preventing breach involves

auditing all operator/administrator access and actions, zero standing

permission for administrators in the service, “Just-In-Time (JIT)

access and elevation” (that is, elevation is granted on an as-needed

and only-at-the-time-of-need basis) of engineer privileges to

troubleshoot the service, and segregation of the employee email

environment from the production access environment. Employees

who have not passed background checks are automatically rejected

from high privilege access, and checking employee backgrounds is a

highly scrutinized, manual-approval process. Data is also encrypted.

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Further details are included in section F below.

(e) Basis for compensation and fees. This is clearly set out in our

contracts with Microsoft.

(f) Business resumption and contingency arrangements: There are

detailed business contingency provisions. See section G below for

more details.

(g) Reporting requirements: Our IT administrators have access to the

Azure Service Health Dashboard, which provides real-time and

continuous monitoring of the Azure service. The Service Health

Dashboard provides our IT administrators with information about the

current availability of each service or tool (and history of availability

status) details about service disruption or outage, scheduled

maintenance times. The information is provided via an RSS feed.

Amongst other things, it provides a contractual uptime guarantee for

the Azure product and covers performance monitoring and reporting

requirements which enable us to monitor Microsoft’s performance on

a continuous basis against service levels. As part of the support we

receive from Microsoft, we also have access to a technical account

manager who is responsible for understanding our challenges and

providing expertise, accelerated support and strategic advice tailored

to our organization. This includes both continuous hands-on

assistance and immediate escalation of urgent issues to speed

resolution and keep mission-critical systems functioning. We are

confident that such arrangements provide us with the appropriate

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mechanisms for managing performance and problems.

(h) Dispute resolution. Our contract is subject to Washington state law

and jurisdiction. We have sought advice on this and are comfortable

with this position. The contract also includes dispute escalation

procedures.

(i) Default termination: The Microsoft Business and Services

Agreement (“MBSA”) contains usual termination provisions. The SLA

is contained with the MBSA is terminable by us for convenience at

any time by providing not less than 60 days’ notice. Any sub-

agreements to the MBSA are terminable by us for convenience at any

time by providing not less than 30 days’ notice. In addition, we have

standard rights of termination for material breach. This gives us the

flexibility and control we need to manage the relationship with

Microsoft because it means that we can terminate the arrangements

whether with or without cause.

(j) Sub-contracting. As set out above, Microsoft does use sub-

contractors to provide certain ancillary assistance, but not for any

critical path roles. An up-to-date list of all subcontractors used to

provide the ancillary services (including exact services) is available at

http://azure.microsoft.com/en-us/support/trust-center/. Microsoft

ensures that all sub-contractors that it deals with are subject to

stringent requirements and is experienced at managing such

relationships.


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(k) Regulations and guidelines on Business Continuity: As set out in

section F below, we have ensured that Microsoft is required to

provide robust and comprehensive business continuity management

and processes.

(l) Continuity in the event of disruption: As set out in section F below,

we have ensured that Microsoft is required to provide robust and

comprehensive disaster recovery management and processes.

Microsoft provides a contractual financially-backed uptime guarantee

for the Azure product and covers performance monitoring and

reporting requirements which enable us to monitor Microsoft’s

performance on a continuous basis against service levels. Under the

service credits mechanism in the SLA, we may be entitled to a

service credit of up to 100% of the service charges. If a failure by

Microsoft also constitutes a breach of contract to which the service

credits regime does not apply, we would of course have ordinary

contractual claims available to us too under the contract.

(m) Audit rights. The extensive audit rights that Microsoft offers was a

key reason for our decision to choose Microsoft. Details of the

different audit rights are set out in section E below.

(n) Notification of breach. Microsoft implements “prevent, detect, and

mitigate breach”, which is a defensive strategy aimed at predicting

and preventing any security breach before it happens. This involves

continuous improvements to built-in security features, including port

scanning and remediation, perimeter vulnerability scanning, OS

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patching to the latest updated security software, network-level DDOS

(distributed denial-of-service) detection and prevention, and multi-

factor authentication for service access. Wherever possible, human

intervention is replaced by an automated, tool-based process,

including routine functions such as deployment, debugging,

diagnostic collection, and restarting services. Azure continues to

invest in systems automation that helps identify abnormal and

suspicious behavior and respond quickly to mitigate security risk.

Microsoft is continuously developing a highly effective system of

automated patch deployment that generates and deploys solutions to

problems identified by the monitoring systems—all without human

intervention. This greatly enhances the security and agility of the

service.

In the event that a security incident or violation is detected, Microsoft

Customer Service and Support notifies Azure subscribers by updating

the Service Health Dashboard that is available on the Azure portal.

We would have access to Microsoft’s dedicated support staff, who

have a deep knowledge of the service. Microsoft provides a RTO (as

defined above) of 30 min or less for Virtual Machines and Storage, 1

hour or less for Virtual Network, and a Recovery Point Objective

(“RPO”) of 1 minute or less for Storage.

Finally, after the incident, Microsoft provides a thorough post-incident

review report (“PIR”). The PIR includes: (i) an incident summary and

event timeline; (ii) broad customer impact and root cause analysis;

(iii) actions being taken for continuous improvement. Microsoft will

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provide the PIR within five business days following resolution of the

service incident. Administrators can also request a PIR using a

standard online service request submission through the Azure portal

or a phone call to Microsoft Customer Service and Support.

E. AUDIT

14. Has your organization made explicit provisions in the outsourcing

contracts or obtained letters of undertaking from Service Providers to

enable regulatory bodies and appointed personnel such as external and

internal auditors to carry out inspection or examination of the Service

Provider’s books, internal controls, facilities, systems, processes and data

relating to the services provided to your organization?

There are various provisions under Malaysia law that require this. In particular

see: (i) Section 148(1)(b) of the FSA; (ii) paragraphs 10.10 and 12.1 of the

BNM’s Guidelines on Outsourcing for Insurers provides that insurers shall, in

all cases, obtain an undertaking from their outsourcing service providers (or

sub-contractors as applicable), or include a provision within the SA, giving

authorized examiners of BNM the right to: (a) examine the books, records,

information, systems and the internal control environment in the service

provider (or sub-contractor as applicable), to the extent that they relate to the

service being performed for the insurer; and (b) access any internal audit or

external audit findings of the service provider (or sub-contractor as applicable)

that concern the service being performed for the insurer; (iii) paragraph 15(c),

Part II of the BNM’s Guidelines on Management of IT Environment; (iv)

paragraph 113 of the BNM’s BCM Guidelines; and (v) paragraph 1(c), Part V

of the BNM’s Guidelines on Management of IT Environment.

Yes.

We are confident that in our choice of Microsoft as Service Provider we have

far more extensive audit rights than most if not all other Service Provider’s

offer. This was an important factor in our decision to choose this Service

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Provider.

In particular, the following audit protections are made available by Microsoft:

1. As part of Microsoft’s certification requirements, they are required to

undergo regular independent third party auditing (via the SSAE16

SOC1 Type II audit, a globally-recognized standard), and Microsoft

shares with us the independent third party audit reports. Microsoft

also agrees as part of the compliance program to customer right to

monitor and supervise. We are confident that such arrangements

provide us with the appropriate level of assessment of Microsoft’s

ability to meet our policy, procedural, security control and regulatory

requirements.

2. BNM is given a contractual right of audit/inspection over Microsoft’s

facilities, so that it can assess and examine systems, processes and

security and regulatory compliance.

Microsoft also offers a Compliance Framework Program. If you take-up the

Compliance Framework Program, you may add this additional information

about its key features: the regulator audit/inspection right, access to

Microsoft’s security policy, the right to participate at events to discuss

Microsoft’s compliance program, the right to receive audit reports and updates

on significant events, including security incidents, risk-threat evaluations and

significant changes to the business resumption and contingency plans.

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F. CONFIDENTIALITY AND SECURITY

14. Have you obtained from the Service Provider a written undertaking to

protect and maintain the confidentiality of your customer data in

compliance with the secrecy provision pursuant to section 133 of the FSA

and the protection of your own confidential information?

Section 133(1) of the FSA which provides that no person who has access to

any document or information relating to the affairs or account of any customer

of a financial institution, including: (a) the financial institution; or (b) any

person who is or has been a director, officer or agent of the financial

institution, shall disclose to another person any document or information

relating to the affairs or account of any customer of the financial institution.

Paragraph 26.1 of the BNM’s Guidelines on Internet Insurance which provides

that any outsourcing of information technology services that relates to internet

insurance require that the service provider or software vendor to provide the

insurer with a written undertaking on its compliance with secrecy of

customers’ and the insurer’s information.

Yes.

Our contract with Microsoft contains robust confidentiality provisions to

prevent disclosure of confidential information whether of our customers or of

our own. Information will only be provided to Microsoft’s sub-contractors on a

need to know basis for the purposes of providing the services and subject to

similar restrictions on confidentiality. If anything further is required we would

work with Microsoft to provide whatever further clarity the regulator may

require in this regard.

It is also relevant to note that the European Union’s data protection authorities

have found that Microsoft’s enterprise cloud contracts meet the high

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standards of EU privacy law. Microsoft is the first – and so far the only –

company to receive this approval.

15. Has senior management determined that there are adequate controls for

identifying, reporting and responding to suspected security incidents and

violations?

Paragraph 6(b), Part II of the BNM’s Guidelines on Management of IT

Environment. Paragraph 27, Guidelines on Internet Insurance. This contains

more specific requirements including that staff of the IC and any outsourcing

vendor are required to report all security breaches promptly to management.

Material security breaches, system downtime and degradation in system

performance that critically affects the IC should be reported to BNM: (i) an

initial report to BNM via telephone immediately upon detection by providing

‘initial information/observation’; and (ii) a formal report should be made within

2 days from the date of detection. These reporting obligations have to be

stated explicitly in the IC’s security policy and the IC should also establish

procedures for proper recording of occurrence of such incidents.

Yes.

Senior management is confident that there are adequate internal controls,

prevention measures and processes for early detection of errors, omissions

and security incidents. Our extensive due diligence and risk profiling at the

outset and processes in place for monitoring, auditing and security protections

assure us of this. We have set out details of this elsewhere in this document.

Microsoft’s systems including its real-time monitoring facilities enable us to

fulfill our reporting obligations to BNM in the event of a security breach

occurring.

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16. Are the following security practices implemented by the Service Provider?

(a) Firewalls have been installed on all connection points between

the internal computer network and the Internet.

(b) Intrusion detection-prevention devices have been installed

(including denial-of-service security appliances where

appropriate).

(c) Virtual private networks (VPN) have been developed within a

public switch network to protect all transmissions from

unauthorized parties, while allowing the use of the public network

infrastructure.

(d) Public key infrastructure (PKI) is used to perform authentication

on the internet through a combination of digital certificates and

public key cryptography (PKC).

(e) Internationally accepted well-defined industry standards of

payment protocol are used to provide a secure environment for

online credit card payments.

(f) Penetration testing is conducted at least once a year or whenever

substantial changes are made to the internet-related systems.

(g) Implement anti-virus software and apply updates regularly.

There are specific security practice requirements contained in Part III of the

BNM’s Guidelines on Management of IT Environment (although note that

these are considerations and not specific requirements that are considered

necessary in all circumstances) and in paragraph 21.5 of the BNM Guidelines

on Internet Insurance.

Yes.

This is an issue that we take very seriously. We have therefore checked these

procedures in detail with Microsoft and are confident that they provide

excellent means to enable us to identify, report and respond properly and

promptly in the event of any security incident or violation. We are assured that

Microsoft is committed to protecting the privacy of our and Microsoft makes

this statement in its Azure Privacy Statement.

Taking each of the points in turn:

(a) Firewalls. Microsoft uses multiple layers of network devices in order

to segregate network security zones and block access to resources

placed in high security zones from external parties.

(b) Intrusion detection-prevention devices. There are robust

procedures offered by Microsoft that enable the prevention of security

incidents and violations in the first place. Specifically:

1. Microsoft implements 24 hour monitored physical hardware. Data

center access is restricted 24 hours per day by job function so that

http://www.microsoft.com/online/legal/v2/?docid=22&langid=en%2Dus

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(h) Access to security logs and audit trails.

(i) Analysis of security logs for suspicious traffic and intrusion

attempts.

(j) Conducting security awareness education and programs.

(k) Providing separate physical/logical environments for systems

development, testing and production.

(l) Encrypting critical or sensitive information which is stored or

transmitted over communication networks.

only essential personnel have access to customer applications and

services. Physical access control uses multiple authentication and

security processes, including badges and smart cards, biometric

scanners, on-premises security officers, continuous video

surveillance, and two-factor authentication.

2. Microsoft implements “prevent, detect, and mitigate breach”, which is

a defensive strategy aimed at predicting and preventing a security

breach before it happens. This involves continuous improvements to

built-in security features, including port scanning and remediation,

perimeter vulnerability scanning, OS patching to the latest updated

security software, network-level DDOS (distributed denial-of-service)

detection and prevention, and multi-factor authentication for service

access.

3. Wherever possible, human intervention is replaced by an automated,

tool-based process, including routine functions such as deployment,

debugging, diagnostic collection, and restarting services. Azure

continues to invest in systems automation that helps identify

abnormal and suspicious behavior and respond quickly to mitigate

security risk. Microsoft is continuously developing a highly effective

system of automated patch deployment that generates and deploys

solutions to problems identified by the monitoring systems—all

without human intervention. This greatly enhances the security and

agility of the service.

(c) VPNs. Not applicable. Azure is a multi-tenanted service and Microsoft

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does not use VPN for customer to access Azure services.

(d) PKI. Azure provides us with the option to use PKI based user-

authentication.

(e) Payment protocols. Not applicable to the services being outsourced

by us.

(f) Penetration testing. Microsoft conducts penetration tests to enable

continuous improvement of incident response procedures. These

internal tests help Azure security experts create a methodical,

repeatable, and optimized stepwise response process and

automation.

(g) Anti-virus software. All services in Azure are virus-scanned every

day with the latest virus definitions.

(h) Access to security logs and audit trails. In the event that a security

incident or violation is detected, Microsoft Customer Service and

Support notifies Azure subscribers by updating the Service Health

Dashboard that is available on the Azure portal. In addition, we have

extensive audit rights as described in Section E.

(i) Analysis of security logs for suspicious traffic and intrusion

attempts. Microsoft has robust automated processes which are

constantly monitoring in this regard. See response at (b) above for

more details.

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(j) Conducting security awareness education and programs. All

personnel with access to customer data are subject to background

screening, security training and access approvals. In addition, the

access levels are reviewed on a periodic basis to ensure that only

users who have appropriate business justification have access to the

systems. User access to data is also limited by user role. For

example, system administrators are not provided with database

administrative access. All appropriate Microsoft Staff take part in a

Microsoft Online Services sponsored security training program, and

are recipients of periodic security awareness updates when

applicable. Security education is an on-going process and is

conducted regularly in order to minimize risks.

(k) Providing separate physical/logical environments for systems

development, testing and production. Microsoft has an operational

change control procedure in place. The operational change control

procedure includes an assessment process of possible change

impact change testing in an approved non-production environment.

(l) Encrypting critical or sensitive information which is stored or

transmitted over communication networks: Networks within the

Azure data centers are segmented to provide physical separation of

critical back-end servers and storage devices from the public-facing

interfaces. Edge router security allows the ability to detect intrusions

and signs of vulnerability. Azure uses industry-standard transport

protocols such as SSL and TLS between user devices and Microsoft

data centers, and within data centers themselves. With virtual

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networks, industry standard IPsec protocol can be used to encrypt

traffic between the corporate VPN gateway and Azure. Encryption

can be enabled for traffic between VMs and end users.Microsoft also

implements traffic throttling to prevent denial-of-service attacks.

Customer data in Azure exists in two states: (i) at rest on storage

media; and (ii) in transit from a data center over a network to a

customer device.

Azure offers a wide range of data encryption capabilities up to AES-

256. Options include .NET cryptographic services, Windows Server

public key infrastructure (PKK) components, Active Directory Rights

Management Services (AD RMS), and Bitlocker for data import/export

scenarios.

Azure uses industry-standard transport protocols such as SSL and

TLS between user devices and Microsoft data centers, and within

data centers themselves. With virtual networks, industry standard

IPsec protocol can be used to encrypt traffic between the corporate

VPN gateway and Azure. Encryption can be enabled for traffic

between VMs and end users.

17. How are customers authenticated? For internal systems, how are staff in

your organization authenticated?

Paragraph 2(a), Part III of the BNM’s Guidelines on Management of IT

Environment. You will need to supplement this with details of your own

internal authentication processes for internal systems.

Yes.

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Azure can uses two-factor authentication to enhance security. Typical

authentication practices that require only a password to access resources

may not provide the appropriate level of protection for information that is

sensitive or vulnerable. Two-factor authentication is an authentication method

that applies a stronger means of identifying the user. The Microsoft phone-

based two-factor authentication solution allows users to receive their PINs

sent as messages to their phones, and then they enter their PINs as a second

password to log on to their services.

18. Is the Service Provider able to isolate and clearly identify your customer

data, documents, records and assets to protect their confidentiality?

Paragraph 6(b), Part II of the BNM’s Guidelines on Management of IT

Environment and FSA as above.

Yes.

Microsoft’s transparency as to data location was a key consideration as part

of the service provider selection process. Active Directory isolates customers

using security boundaries (also known as silos). This safeguards a customer’s

data so that the data cannot be accessed or compromised by co-tenants.

19. Are your data / applications stored in the vendor systems commingled

with those of other subscribers? Is the Service Provider able to isolate

and clearly identify your customer data, documents, records and assets to

protect their confidentiality?

Paragraph 10.10(c) of BNM’s Guidelines on Outsourcing for Insurers which

states that the SA entered into between the insurer and the service provider

should provide for clear identification and establishment of ownership of all

assets relating to the outsourcing arrangement. The SA should specify the

terms governing the use of the insurer’s premises, personnel and equipment,

where relevant.

Data and applications are not commingled with those of other customers and

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yes the Service Provider is able to clearly identify our customer data,

documents, records and assets to protect their confidentiality.

Networks within the Azure data centers are segmented to provide physical

separation of critical back-end servers and storage devices from the public-

facing interfaces.

20. Are there documented system for monitoring and managing the computer

center’s resources (i.e. utilization of the central processing unit (CPU),

hard disk and memory, problem reporting and prioritization, equipment

malfunctions, frequency and duration of system down time and network

activities to detect suspicious trends and attempts to gain access to the

system)?

Paragraph 3(g), Part V of the BNM’s Guidelines on Management of IT

Environment.

Yes. The security procedures for safeguarding hardware, software and

security are documented in detail by Microsoft in its Standard Response to

Request for Information – Security and Privacy. This confirms how the

following aspects of Microsoft’s operations safeguard hardware, software and

data:

Compliance;

Data Governance;

Facility;

Human Resources;

Information Security;

Legal;

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Operations;

Risk Management;

Release Management;

Resiliency; and

Security Architecture.

21. Are the following physical and environmental controls available at the

data center?

(a) All computer and telecommunications peripherals adequately

labeled for proper identification

(b) Uninterruptible power supply

(c) Air conditioning system

(d) Temperature sensor

(e) Fire detector

(f) Smoke detector

(g) Fire suppression system

Part V of the BNM’s Guidelines on Management of IT Environment.

Taking each one in turn:

(a) All computer and telecommunications peripherals adequately

labeled for proper identification. Yes.

(b) Uninterruptible power supply (“UPS”). Microsoft’s data centers

have dedicated 24x7 UPS and emergency power support, i.e.

generators. Regular maintenance and testing is conducted for both

the UPS and generators. Data centers have made arrangements for

emergency fuel delivery. The data centers have dedicated Facility

Operations Centers to monitor the power systems, including all critical

electrical components – generators, transfer switch, main switchgear,

power management module and UPS equipment.

(c) Air conditioning system. Microsoft has implemented environmental

controls to protect the data centers including ventilation and air

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(h) Raised floor

(i) Water leakage detection system

conditioning.

(d) Temperature sensor. Microsoft has implemented environmental

controls to protect the data centers including temperature control and

heating. The data centers’ Facility Operations Centers monitor the

heating, ventilation and air conditioning system, which controls and

monitors space temperature and humidity within the data centers,

space pressurization and outside air intake.

(e) Fire detector. Fire Detection and Suppression systems exist at all

Microsoft’s data centers. Additionally, portable fire extinguishers are

available at various locations in the data center. Routine maintenance

is performed on facility and environmental protection equipment.

(f) Smoke detector. See above. In addition, Microsoft’s equipment is

placed in environments which have been engineered to be protective

from environmental risks such as smoke.

(g) Fire suppression system. Fire Detection and Suppression systems

exist at all Microsoft’s data centers. Additionally, portable fire

extinguishers are available at various locations in the data center.

Routine maintenance is performed on facility and environmental

protection equipment.

(h) Raised floor. Microsoft’s equipment is placed in environments which

have been engineered to be protective from environmental risks such

as water.

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(i) Water leakage detection system. Microsoft has water leakage

detection systems for water-cooling data centers.

22. Who is primarily in charge of security administration and systems access

functions?

Paragraph 1(e), Part III of the BNM’s Guidelines on Management of IT

Environment which provides that a security administrator and/ or a system

administrator who are responsible for the system security and/ or

administration functions and to implement policies as well as adopted

standards, should be formally appointed.

Overall responsibility for these matters remains with our organization and we

have procedures in place to monitor overall performance. Our [security

administrator/system administrator is insert name].

Microsoft will perform the technical monitoring and management functions on

our behalf. System level data such as configuration data/file and commands

are managed as part of the configuration management system. Any changes

or updates to or deletion of those data/files/commands will be automatically

deleted by the configuration management system as anomalies.

We will receive information about system integrity, security monitoring and

network performance through the Azure Service Health Dashboard, as

described above.

23. Does the Service Provider adhere to the provisions of the Personal Data

Protection Act 2010 (“PDPA”)?

Paragraph 26.1 of the BNM’s Guidelines on Internet Insurance which provides

that any outsourcing of information technology services that relates to internet

insurance require that the vendor abide by any data protection legislation that

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is in effect. The PDPA can be found here.

Yes.

Our use of Microsoft Azure would not cause us to fail to meet any obligation

we may have under the PDPA. In fact, we think that Microsoft Azure has

features that will help us comply with certain provisions (including security

obligations). We will continue to maintain overall responsibility and

accountability for compliance with the PDPA.

In relation to the specific requirements of the PDPA that apply to the use of

cloud services:

1. We have an obligation to implement reasonable and appropriate

organizational, physical and technical measures to protect

personal information. We are satisfied with Microsoft’s security

procedures, as described in its Standard Response to Request for

Information – Security and Privacy (and further described in other

parts of this document).

2. We have an obligation to use contractual or other reasonable

means to provide a comparable level of protection while the

information is being processed by Microsoft. We are satisfied that our

legally-binding agreement with Microsoft, and the operational

procedures we have in place to monitor compliance, together with our

choice of service provider, will provide at least a comparable level of

protection for personal information. Our contract with Microsoft



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ensures that all data (but in particular any customer data) is treated

with the highest level of security enabling us to continue to comply

with our legal and regulatory obligations and our commitments to

customers.

3. In addition Microsoft commits to comply with ISO/IEC 27018. In

February 2015, Microsoft became the first major cloud provider to

adopt the world’s first international standard for cloud privacy,

ISO/IEC 27018. The standard was developed by the International

Organization for Standardization (ISO) to establish a uniform,

international approach to protecting privacy for personal data stored

in the cloud. The British Standards Institute (BSI) has now

independently verified that Microsoft is aligned with the standard’s

code of practice for the protection of Personally Identifiable

Information (PII) in the public cloud. The controls set out in ISO/IEC

27018 match the protections required by the PDPA. For more

information on this, follow this link.

G. DATA BACKUP AND DISASTER RECOVERY

24. Does the Service Provider have a fully documented and adequately

resourced business continuity plan (“BCP”) and disaster recovery plan

(“DRP”)? If yes, provide documentation or details.

Paragraph 112 of the BNM’s BCM Guidelines.

Yes.

Microsoft offers contractually-guaranteed uptime, globally available data

centers for primary and backup storage, physical redundancy at disk, NIC,

power supply and server levels, constant content replication, robust backup,

http://blogs.microsoft.com/on-the-issues/2015/02/16/microsoft-adopts-first-international-cloud-privacy-standard/

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restoration and failover capabilities, real-time issue detection and automated

response such that workloads can be moved off any failing infrastructure

components with no perceptible impact on the service, 24/7 on-call

engineering teams.

Microsoft’s arrangements are as follows:

Redundancy

Physical redundancy at server, data center, and service levels;

Data redundancy with robust failover capabilities; and

Functional redundancy with offline functionality.

Resiliency

Active load balancing;

Automated failover with human backup; and

Recovery testing across failure domains.

Distributed Services

Distributed component services limit scope and impact of any failures

in a component;

http://office.microsoft.com/en-us/business/office-365-online-service-availability-FX104028266.aspx

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Directory data replicated across component services insulates one

service from another in any failure events; and

Simplified operations and deployment.

Monitoring

Internal monitoring built to drive automatic recovery;

Outside-in monitoring raises alerts about incidents; and

Extensive diagnostics provide logging, auditing, and granular tracing.

Simplification

Standardized hardware reduces issue isolation complexities;

Fully automated deployment models; and

Standard built-in management mechanism.

Human backup

Automated recovery actions with 24/7 on-call support;

Team with diverse skills on the call provides rapid response and

resolution; and

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Continuous improvement by learning from the on-call teams.

Continuous learning

If an incident occurs, Microsoft does a thorough post-incident review

every time; and

Microsoft’s post-incident review consists of analysis of what

happened, Microsoft’s response, and Microsoft’s plan to prevent it in

the future.

For the avoidance of doubt, the nature of the services provided as part of

Azure does not give rise to a risk that the Bank itself could become “offline”

(i.e. there would be no implication for core banking functions such as

transaction processing).

25. What are the data backup and recovery arrangements for your

organization’s data that reside with the Service Provider?

Paragraph 71 of the BNM’s BCM Guidelines, which states that an institution

should make available a functional alternate and recovery site for their

business functions and technology in the event the business premises, key

infrastructure and systems supporting critical business functions become

unavailable. Pursuant to paragraph 110 of the BNM’s BCM Guidelines, the

institution should ensure that the service provider is subjected to the BCM

Guidelines, where appropriate. Therefore, the service provider should ensure

that it has a functional alternate and recovery site.

See response directly above for details.

http://office.microsoft.com/en-us/business/office-365-online-service-availability-FX104028266.aspx

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26. Has a testing of the BCP and DRP of the Service Provider been

conducted?

Paragraph 112 of the BNM’s BCM Guidelines which provides that the

institution should ensure that periodic testing is conducted by the outsourcing

vendor on its BCP and DRP at least annually and twice a year, respectively.

Yes.

As part of Microsoft’s certification requirements, it is required to undergo

regular independent third party auditing and Microsoft shares with us the

independent third party audit reports.

27. How frequently does the Service Provider conduct tests on its BCP and

DRP?

Paragraph 112 of the BNM’s BCM Guidelines which provides that periodic

testing should be conducted by the outsourcing vendor at least twice a year

on its BCP and DRP, respectively.

Microsoft carries out disaster recovery testing at least once per year.

28. Does your organization’s BCP address the reasonably foreseeable

situations in the event that the Service Provider fails to provide the

required services, causing disruptions to your organization’s operations?

Paragraph 115 of BNM’s BCM Guidelines which provides that the institution’s

own BCP should address reasonably foreseeable situations where the

outsourcing vendor fails to provide the required services, causing disruptions

to the institution’s operations.

Note, this question, primarily concerns your own internal BCP. If you have any

questions or we can help in any way, just let us know.

29. Have you tailored and tested your disaster recovery or business

continuity plan?

Part B.2.9 of the BNM’s BCM Guidelines which provides for the testing of the

BCP and DRP by the institution. BCP should be tested at least once a year

for all critical business functions, while the DRP for all critical application

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systems should be tested at least twice a year, of which one of the tests

should be a “live run”.

This question concerns your own testing as opposed to that which Microsoft

carries out. You will need to be able to demonstrate that you comply with the

requirements set out above in terms of frequency of testing.

30. Is the Service Provider required to notify you in the event that it makes

significant changes to its BCP and DRP, or encounters other

circumstances that might have a serious impact on its services?

Paragraph 114 of the BNM’s BCM Guidelines.

Yes.

Microsoft will inform us if there are any important changes to the service with

respect to security, privacy, and compliance. Microsoft will also promptly

notify us if your data has been accessed improperly.

In the event that a security incident or violation is detected, Microsoft

Customer Service and Support notifies Azure subscribers by updating the

Service Health Dashboard that is available on the Azure portal. We would

have access to Microsoft’s dedicated support staff, who have a deep

knowledge of the service. Microsoft provides a RTO (as defined above) of 30

min or less for Virtual Machines and Storage, 1 hour or less for Virtual

Network, and a Recovery Point Objective (“RPO”) of 1 minute or less for

Storage.

After the incident, Microsoft provides a thorough PIR. See our response

above for more information.

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31. What are the RTO of systems or applications outsourced to the Service

Provider?

Part G of the BNM’s BCM Guidelines, ‘Recovery Time Objective’.

RTO: 30 min or less for Virtual Machines and Storage, 1 hour or less for

Virtual Network.

H. EXIT STRATEGY

32. Do you have the right to terminate the SA in the event of default,

ownership change, change of security or serious deterioration of service

quality?

Paragraph 10.10(i) of BNM’s Guidelines on Outsourcing for Insurers which

states that the SA between the insurer and the service provider should

provide for default events and remedies, which should include a termination

clause. In particular, the insurer should have the right to terminate the

agreement if the agreed service levels are consistently not met or when the

service provider undergoes a material change in ownership or encounters

other circumstances that might seriously impair its ability to provide the

agreed services.

Yes.

Our main agreement with Microsoft contains usual termination provisions. The

SLA is contained with the MBSA is terminable by us for convenience at any

time by providing not less than 60 days’ notice. Any sub-agreements to the

MBSA are terminable by us for convenience at any time by providing not less

than 30 days’ notice. In addition, we have standard rights of termination for

material breach. This gives us the flexibility and control we need to manage

the relationship with Microsoft because it means that we can terminate the

arrangements whether with or without cause.

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33. In the event of contract termination with the Service Provider, either on

expiry or prematurely, are you able to have all IT information and assets

promptly removed or destroyed?

Paragraph 10.10(i) of the BNM’s Guidelines on Outsourcing for Insurers

which states that the SA should also lay down clear procedures for the return

of the insurer’s intellectual or physical property in a timely manner, in the

event of default or termination.

Yes.

Microsoft uses best practice procedures and a wiping solution that is NIST

800-88 compliant. For hard drives that can’t be wiped it uses a destruction

process that destroys it (i.e. shredding) and renders the recovery of

information impossible (e.g., disintegrate, shred, pulverize, or incinerate). The

appropriate means of disposal is determined by the asset type. Records of

the destruction are retained.

All Microsoft Online Services utilize approved media storage and disposal

management services. Paper documents are destroyed by approved means

at the pre-determined end-of-life cycle.

“Secure disposal or re-use of equipment and disposal of media” is covered

under the ISO/IEC 27001 standards against which Microsoft is certified.

I. INFORMATION TO BE SUBMITTED FOR APPLICATIONS TO OUTSOURCE ABROAD

BNM’s prior approval is required for ICs to enter into any outsourcing arrangement (material or not) which results in services being provided in a

location outside Malaysia. Applications to outsource abroad should include the information set out below (see Appendix III of the BNM Guidelines on

Outsourcing for Insurers).

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34. Full description of services to be outsourced. You can find the details in the contract which comprehensively sets out the

scope of the arrangement and the respective commitments of the parties. The

online services are ordered under the Enrollment, and the order will set out

the online services and relevant prices.

The services are broadly described, along with the applicable usage rights, in

the Product List and the PUR. The services are described in detail in the

Service Description, which is not part of the contract. However, Microsoft

makes a functionality commitment in the Core Features Amendment, and as a

minimum the online services will meet that commitment during the term of the

contract.

35. Business case. You will need to provide a business case. You can draw upon some of the

information contained in section B above.

36. Materiality assessment. For ICs, see the relevant considerations regarding what is ‘material’ in Part

VIII of the BNM Guidelines on Outsourcing for Insurers.

37. Due diligence of Service Provider. You can draw upon the information provided in section C above.

38. Confirmation that the relevant laws of the foreign jurisdiction and terms

and conditions of the SA allow for BNM to have reasonable and timely

access to information/data belonging to the IC.

You will likely want to undertake your own legal review in this regard.

Microsoft is not aware of any laws in the countries in which it would be

providing the services that would impact BNM having such access.

39. Description of the manner in which the IC will ensure effective control and

oversight over the service outsourced (should include a description of

identified risks involved in the arrangement and the strategies put in place

You can draw upon the information contained in section B above which

contains detailed information regarding risk assessment and management

and control and oversight.

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to address the risks).

40. Confirmation that the services are not available locally at comparable

costs and service levels or, if available, the justification for the use of the

foreign Service Provider.

You will need to confirm this point from your own analysis.

41. Description of any reciprocal services provided out of Malaysia. Not applicable.

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APPENDIX ONE

MANDATORY CONTRACTUAL REQUIREMENTS

This table sets out the specific items that must be covered in the IC’s agreement with the Service Provider.

Key:

Where relevant, a cross-reference is included in red italics to the underlying regulation that sets out the contractual requirement.

In blue text, Microsoft has provided you with a reference to where in the agreement the contractual requirement is covered for ease of reference.

Terms used below as follows:

OST = Online Services Terms

EA = Enterprise Agreement

Enrolment = Enterprise Enrolment

FSA = Financial Services Amendment

MBSA = Microsoft Business and Services Agreement

PUR = Product Use Rights

SLA = Online Services Service Level Agreement

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Ref. Requirement Microsoft agreement reference

1. General obligations:

- All material outsourcings should be documented by clearly written

service agreements that address, as far as possible within the

contract, all issues relevant to managing the risks associated with

the outsourcing arrangement.

- The agreement should be reviewed by the IC’s legal counsel to

ensure that the IC’s interests are safeguarded.

- Agreements should be signed by the relevant parties prior to the

commencement of the services. Thereafter, material modifications to

the service agreement should not be permitted without the prior

consent of the IC.

Paragraph 10.9, BNM Guidelines on outsourcing for Insurers

Documented:

Yes.

The contractual documents are all written and clear.

Reviewed by legal counsel:

Yes.

Microsoft recommends that you do seek legal advice on the use of cloud

computing services in relation to statutory / regulatory / common law

requirements. You will need to be able to confirm this review has been

undertaken.

Signed by relevant parties prior to commencement of the services

and material modifications not permitted without the consent of the

IC:

Yes.

The document is signed by the parties. Section 11k of the MBSA states

that the contract may be amended only by a formal written agreement

signed by both parties.

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2. The description of the services to be provided including the frequency,

content and format of the services.

Paragraph 10.10(a), BNM Guidelines on outsourcing for Insurers

Yes.

The contract pack comprehensively sets out the scope of the arrangement

and the respective commitments of the parties. The services are

described, along with the applicable usage rights, in the Product List and

OST (pages 14 and 15). The services are described in detail in the

Services Description, which is not part of the contract. However, Microsoft

makes a functionality commitment in the Core Features Amendment and

as a minimum the online services will meet that commitment.

3. Service levels and performance measures which should be consistent with

the IC’s outsourcing objectives and strategies.

Paragraph 10.10(b), BNM Guidelines on outsourcing for Insurers

Yes.

The SLA contains Microsoft’s service level commitment, as well as the

remedies for the customer in the event that Microsoft does not meet the

commitment. The terms of the SLA current at the start of the applicable

initial or renewal term of the Enrollment are fixed for the duration of that

term.

4. Clear identification and establishment of ownership of all assets (intellectual

and physical) relating to the outsourcing arrangement. Where relevant, the

service agreement should specify the terms governing the use of the IC’s

premises, personnel and equipment.

Paragraph 10.10(c), BNM Guidelines on outsourcing for Insurers

Yes.

Ownership of Customer Data remains at all times with the customer (see

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OST, page 8).

Terms governing the use of our premises, personnel and equipment are

not relevant.

5. Agreed responsibilities and duties of the Service Provider including:

- Compliance with relevant regulatory requirements and internal

policies of the IC;

- Provisions dealing with the protection and maintenance of the IC’s

data and assets which should be capable of logical separation at all

times from those handled by the Service Provider for other clients;

- Obligation of the Service Provider to maintain adequate insurance

coverage;

- Reporting requirements necessary to enable tie IC to effectively

monitor the performance of the Service Provider in a timely manner

as well as reporting of events that may materially affect the delivery

of service.

Paragraph 10.10(d), BNM Guidelines on outsourcing for Insurers

Compliance with relevant regulatory requirements and internal

policies of the IC:

Yes.

MBSA section 11m states that Microsoft and the customer each commit to

comply with all applicable privacy and data protection laws and

regulations.

Provisions dealing with the protection and maintenance of the IC’s

data and assets which should be capable of logical separation at all

times from those handled by the Service Provider for other clients:

Yes.

The customer retains the ability to access its Customer Data at all times

(OST, page 10), and Microsoft will deal with Customer Data in accordance

with Enrollment clause 6c(iv) and the OST. In summary: following

termination Microsoft will (unless otherwise directed by the customer)

delete the Customer Data after a 90 day retention period. Finally, from a

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technical perspective the wide availability and usage of Microsoft’s

products means that Customer Data can generally be extracted in a format

compatible with commonly available alternative products

Microsoft also makes specific commitments with respect to Customer Data

in the OST. In summary Microsoft commits that:

1. Ownership of Customer Data remains at all times with the customer

(see OST, page 8).

2. Customer Data will only be used to provide the online services to the

customer. Customer Data will not be used for any other purposes,

including for advertising or other commercial purposes (see OST,

page 8).

3. Microsoft will not disclose Customer Data to law enforcement unless it

is legally obliged to do so, and only after not being able to redirect the

request to the customer (see OST, page 8).

4. Microsoft will implement and maintain appropriate technical and

organizational measures, internal controls, and information security

routines intended to protect Customer Data against accidental,

unauthorized or unlawful access, disclosure, alteration, loss, or

destruction (see OST, page 8 and pages 11-13 for more details).

5. Microsoft will notify the customer if it becomes aware of any security

incident, and will take reasonable steps to mitigate the effects and

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minimize the damage resulting from the security incident (see OST,

page 9).

Obligation of the Service Provider to maintain adequate insurance

coverage:

Yes.

MBSA section 10 deals with insurance. In practice, Microsoft maintains

self-insurance arrangements for much of the areas where third party

insurance is typically obtained. Microsoft has taken the commercial

decision to take this approach, and does not believe that this detrimentally

impacts upon its customers given that Microsoft is an extremely

substantial entity.

Reporting requirements necessary to enable tie IC to effectively

monitor the performance of the Service Provider in a timely manner

as well as reporting of events that may materially affect the delivery

of service:

Yes.

The OST specifies the audit and monitoring mechanisms that Microsoft

puts in place in order to verify that the online services meet appropriate

security and compliance standards. This commitment is reiterated in the

FSA.

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Clause 1f of the FSA gives the customer the opportunity to participate in

the Microsoft Online Services Customer Compliance Program, which is a

for-fee program that facilitates the customer’s ability to (a) assess the

services’ controls and effectiveness, (b) access data related to service

operations, (c) maintain insight into operational risks of the services, (d) be

provided with additional notification of changes that may materially impact

Microsoft’s ability to provide the services, and (e) provide feedback on

areas for improvement in the services.

6. Obligations of the Service Provider to protect confidential information. This

should include a provision prohibiting the Service Provider and its agent from

using or disclosing the IC’s proprietary information or that of its customers,

except as necessary to provide the contracted services and to meet

regulatory and statutory provisions. The agreements should provide for the

IC to be promptly notified of any breach of confidentiality and address liability

for losses that might result from such a breach.

Paragraph 10.10(e), BNM Guidelines on outsourcing for Insurers

Yes.

MBSA section 3 deals with confidentiality. Under this section Microsoft

commits not to disclose our confidential information (which includes our

data) to third parties and to only use our confidential information for the

purposes of Microsoft’s business relationship with us. If there is a breach

of confidentiality by Microsoft, we are able to bring a claim for breach of

contract against Microsoft.

MBSA section 11m states that Microsoft and the customer each commit to


regulations.

Microsoft will notify the customer if it becomes aware of any security

incident, and will take reasonable steps to mitigate the effects and

minimize the damage resulting from the security incident (see OST, page

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9).

MBSA section 6 deals with liability. MBSA section 5 sets out Microsoft’s

obligation to defend the regulated entity against third party infringement

and breach of confidence claims. Microsoft’s liability under section 5 is

unlimited.

7. The basis for compensation and fees for the services provided as well as

circumstances under which additional charges may be imposed. Conditions

under which the payment structure may be changed should also be

addressed.

Paragraph 10.10(f), BNM Guidelines on outsourcing for Insurers

Yes.

Sales of Microsoft product to enterprise customers are made via a

Microsoft reseller, who sets the end price with the customer. The basis for

the pricing will therefore be set out in a separate agreement with

Microsoft’s reseller.

Microsoft has a variety of flexible licensing models. Please refer to the

arrangements with your Microsoft reseller for more information. In general,

the customer is required to commit to annual payments (payable in

advance) based upon the customer’s number of users.

8. Contingency arrangements outlining the Service Provider’s measures for

ensuring the continuation of the outsourced activity in the event of problems

affecting the Service Provider’s operation. The agreement should place an

obligation on the Service Provider to regularly test its business resumption

and contingency systems and to notify the IC of the test results. In addition,

the IC should be notified in the event that the Service Provider makes

Paragraph 10.10(g), BNM Guidelines on outsourcing for Insurers

Yes.

Business Continuity Management forms part of the scope of the

accreditation that Microsoft remains in relation to the online services, and

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significant changes to its contingency plans. Microsoft commits to maintain a data security policy that complies with

these accreditations (see OST page 13). Business Continuity

Management also forms part of the scope of Microsoft’s annual third party

compliance audit.

Under the Compliance Framework Program (if taken up by the customer),

Microsoft will provide communications to the customer regarding

significant changes to the business resumption and contingency plans.

9. Mechanisms for resolving disputes. This should include recourse of the

respective parties, procedures and period for resolution, indemnities,

obligations of the respective parties in the event of a dispute (such as

whether the Service Provider must continue to provide the service during the

dispute) as well as applicable laws and jurisdiction under which disputes will

be settled.

Paragraph 10.10(h), BNM Guidelines on outsourcing for Insurers

Yes.

MBSA section 11 contains provisions that describe how a dispute under

the contract is to be conducted.

MBSA section 11e sets out the jurisdictions in which parties should bring

their actions. Microsoft must bring actions against the customer in the

countries where the customer’s contracting party is headquartered. The

customer must bring actions against: (a) in Ireland if the action is against a

Microsoft affiliates in Europe; (b) in the State of Washington, if the action is

against a Microsoft affiliate outside of Europe; or (c) in the country where

the Microsoft affiliate delivering the services has its headquarters if the

action is to enforce a Statement of Services.

MBSA section 11h sets out the choice of law provision. Either, the

contract is governed by the laws of the State of Washington if the contract

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is with a Microsoft affiliate located outside of Europe; or the contract is

governed by the laws of Ireland if the contract is with a European Microsoft

affiliate.

MBSA section 6 deals with liability and rights of action. MBSA section 5

sets out Microsoft’s obligation to defend the regulated entity against third

party infringement and breach of confidence claims. Subject to the terms

of the MBSA, Microsoft’s liability under section 5 is unlimited.

10. Default events and remedies which should include a termination clause. In

particular, an IC should have the right to terminate the agreement if agreed

service levels are consistently not met, or when the Service Provider

undergoes a material change in ownership or encounters other

circumstances that might seriously impair its ability to provide the agreed

services. Appropriate notice should be required for termination which should

allow the IC to make alternative arrangements without significantly disrupting

operations. Clear procedures should also be specified for the return of the

IC’s intellectual or physical property in a timely manner.

Paragraph 10.10(i), BNM Guidelines on outsourcing for Insurers

Yes.

Termination rights for the Enrollment are set out in the Enrollment itself,

and in section 6 of the EA. If the Enrollment is terminated, this will

terminate all products and services ordered under the Enrollment (except

to the extent that the customer has perpetual rights).

Online services may also be terminated or suspended in the

circumstances described in section 6d of the EA, and as specified in the

OST, pages 5, 11 and 30.

In the event of default, the provisions of the SLA will apply to service level

failures and page 9 of the OST sets out arrangements in the event of

security incidents. Other defaults are addressed in the MBSA and EA. A

termination right for cause is set out at section 6c of the EA.

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The contract also allows the customer to terminate the arrangement with

Microsoft for convenience (MBSA section 8) which means the customer

has the right to terminate in the event of default including change of

ownership, insolvency or where there is a breach of security or

confidentiality or demonstrable deterioration in the ability of the Service

Provider to perform the service as contracted.

Note also that customers have control over the use they make of, and data

they load into, the online service.Yes.

Microsoft contractually commits to retain our data stored in the Online

Service in a limited function account for 90 days after expiration or

termination of our subscription so that we may extract the data. After the

90 day retention period ends, Microsoft will disable our account and delete

our data (OST, page 5).

In addition, the customer retains the ability to access its Customer Data at

all times (OST, page 10), and Microsoft will deal with Customer Data in

accordance with Enrollment clause 6c(iv) and the OST. Finally, MBSA

section 11m states that Microsoft and the customer each commit to


regulations.

11. Audit and inspection rights for the insurer to evaluate or alternatively cause

an independent auditor to evaluate on its behalf the service provided. This

should include the ability of the IC to review all books, records, information,

systems and the internal control environment (including access to relevant

Paragraph 10.10(j), BNM Guidelines on outsourcing for Insurers

Yes.

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audit reports) in the Service Provider that are relevant to the outsourced

activity.




FSA.

In addition, clauses 1e and 1f of the FSA detail the examination and

influence rights that are granted to the customer and BNM.

Clause 1e sets out a process which can culminate in the regulator’s

examination of Microsoft’s premises.

Clause 1f gives the customer the opportunity to participate in the Microsoft

Online Services Customer Compliance Program, which is a for-fee

program that facilitates the customer’s ability to (a) assess the services’

controls and effectiveness, (b) access data related to service operations,

(c) maintain insight into operational risks of the services, (d) be provided

with additional notification of changes that may materially impact



12. Appropriate limitations concerning the ability of the Service Provider to

subcontract any part of the outsourced activity to a third party. The approval

of the IC should be required for the use of subcontractors and the IC is

expected to ensure that the conditions for subcontracting allow the IC to

maintain similar control over the outsourcing relationship and outsourcing

risks as if the service were not subcontracted.

Paragraph 10.10(k), BNM Guidelines on outsourcing for Insurers

Yes.

See page 9 of the OST, under which Microsoft is permitted to hire

subcontractors.

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The confidentiality of our data is protected when Microsoft uses

subcontractors because Microsoft commits that its subcontractors “will be

permitted to obtain Customer Data only to deliver the services Microsoft

has retained them to provide and will be prohibited from using Customer

Data for any other purpose” (OST, page 9).

Microsoft commits that any subcontractors to whom Microsoft transfers our

data will have entered into written agreements with Microsoft that are no

less protective than the data processing terms in the OST (OST, page 11).

Under the terms of the OST, Microsoft remains contractually responsible

(and therefore liable) for its subcontractors’ compliance with Microsoft’s

obligations in the OST (OST, page 9). In addition, Microsoft’s commitment

to ISO/IEC 27018, requires Microsoft to ensure that its subcontractors are

subject to the same security controls as Microsoft is subject to. Finally, the

EU Model Clauses, which are included in the OST, require Microsoft to

ensure that its subcontractors outside of Europe comply with the same

requirements as Microsoft and set out in detail how Microsoft must achieve

this.

Microsoft maintains a list of authorized subcontractors for the online

services that have access to our data and provides us with a mechanism

to obtain notice of any updates to that list (OST, page 10). The actual list is

published on the applicable Trust Center. If we do not approve of a

subcontractor that is added to the list, then we are entitled to terminate the

affected online services.


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13. The service agreement should stipulate a defined time frame for the

provision of services which may include an option for the IC to renew the

terms of the service if desired. ICs are expected to regularly review the

service agreement to assess whether the agreement needs to be

renegotiated to bring it in line with current market standards and to cope with

changes in business strategies. For this purpose, a clause should be

included in the service agreement to allow for such interim reviews under

reasonable circumstances.


Enrollments have a three year term, and may be renewed for a further

three year term. A review would therefore take place at least every three

years, although amendments can be made more regularly. Section 11k of

the MBSA states that the contract may be amended only by a formal

written agreement signed by both parties.

14. The service agreement must not contain any clause that would:

- Prevent an IC from modifying or terminating an outsourcing

arrangement pursuant to a directive of the bank;

- Affect the right of a customer against the IC, including the right to

obtain redress;

- Impede the IC from meeting its regulatory obligations, or the BNM

from exercising its supervisory powers; or

- Preclude the service from being continued in situations where the

BNM or a person appointed by the BNM takes control of the IC or

where the IC is in liquidation.


Microsoft does not believe that any of these provisions are included in the

contractual documents. You should confirm that this is the case. If you

have any questions, please do not hesitate to get in touch with your

Microsoft contact.

We confirm that our agreement with Microsoft does not contain any such

clauses.

15. The service agreement should specify the requirements for ensuring the

continuity of the outsourcing vendor’s services. Recovery time objectives

(RTO) should be built into the outsourcing contract with provisions for legal

Paragraph 111, BCM Guidelines

Yes.

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liability should the RTO not be achieved. Business Continuity Management forms part of the scope of the


Microsoft commits to maintain a data security policy that complies with



compliance audit.

RTO requirements are set out in the SLA and this also includes the

provision for service credits if Microsoft fails to meet the commitments in

the SLA. If a failure by Microsoft also constitutes a breach of contract to

which the service credits regime does not apply, we would of course have

ordinary contractual claims available to us too under the contract.

16. Service agreements for contracted services should clearly prohibit the

unauthorized disclosure of confidential data by the external party and provide

for adequate remedies.

Paragraph 4.25, Guidelines on Data Management and MIS Framework

Yes.







17. The written, enforceable agreement should set out the governing roles,

relationships, obligations and responsibilities of all contracting parties. It

should also cover: performance expectations, service levels, availability,

Section II, paragraph 15(c), Guidelines on Management of IT Environment

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reliability, scalability, compliance, security and confidentiality, back processes

facility, contingency planning, right to audit contractual responsibilities and

discontinuation of services and returning all information.

Yes.

All of these points are covered, taking each in turn:

1. The contract pack comprehensively sets out the scope of the

arrangement and the respective commitments of the parties. The

services are broadly described, along with the applicable usage

rights, in the Product List and the OST. The services are

described, along with the applicable usage rights, in the Product

List and OST (pages 14 and 15). The services are described in

detail in the Services Description, which is not part of the contract.

However, Microsoft makes a functionality commitment in the Core

Features Amendment and as a minimum the online services will

meet that commitment.

2. The SLA contains Microsoft’s service level commitment, as well as

the remedies for the customer in the event that Microsoft does not

meet the commitment.

3. MBSA section 11m states that Microsoft and the customer each

commit to comply with all applicable privacy and data protection

laws and regulations.

4. Microsoft also makes specific commitments with respect to

Customer Data in the OST, including that Microsoft will implement

and maintain appropriate technical and organizational measures,

internal controls, and information security routines intended to

protect Customer Data against accidental, unauthorized or

unlawful access, disclosure, alteration, loss, or destruction (see

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OST, page 8 and pages 11-13 for more details).

5. MBSA section 3 deals with confidentiality. Under this section

Microsoft commits not to disclose our confidential information

(which includes our data) to third parties and to only use our

confidential information for the purposes of Microsoft’s business

relationship with us. If there is a breach of confidentiality by

Microsoft, we are able to bring a claim for breach of contract

against Microsoft.

6. Business Continuity Management forms part of the scope of the

accreditation that Microsoft remains in relation to the online

services, and Microsoft commits to maintain a data security policy

that complies with these accreditations (see OST page 13).

7. The OST specifies the audit and monitoring mechanisms that

Microsoft puts in place in order to verify that the online services

meet appropriate security and compliance standards. This

commitment is reiterated in the FSA.

8. Online services may also be terminated or suspended in the

circumstances described in section 6d of the EA, and as specified

in the OST, pages 5, 11 and 30. The contract also allows the

customer to terminate the arrangement with Microsoft for

convenience (MBSA section 8).

9. Microsoft contractually commits to retain our data stored in the

Online Service in a limited function account for 90 days after

expiration or termination of our subscription so that we may extract

the data. After the 90 day retention period ends, Microsoft will

disable our account and delete our data (OST, page 5).

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18. The agreement should explicitly mention BNM’s right to independently

assess, when necessary and regardless of the location, the competence and

the operational and financial performance of the service provider.

Section II, paragraph 15(c), Guidelines on Management of IT Environment

Yes.




FSA.

In addition, clauses 1e and 1f of the FSA detail the examination and

influence rights that are granted to the customer and BNM.

Clause 1e sets out a process which can culminate in the regulator’s

examination of Microsoft’s premises.

Clause 1f gives the customer the opportunity to participate in the Microsoft

Online Services Customer Compliance Program, which is a for-fee

program that facilitates the customer’s ability to (a) assess the services’

controls and effectiveness, (b) access data related to service operations,

(c) maintain insight into operational risks of the services, (d) be provided

with additional notification of changes that may materially impact



19. The agreement should be legally binding. It should outline all expected

service levels and the agreement is properly executed to protect the

Part IV, paragraph 1(e), Guidelines on Management of IT Environment

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institution’s interests. Yes.

The contractual documents are all written and clear and legally binding.

The SLA contains Microsoft’s service level commitment, as well as the

remedies for the customer in the event that Microsoft does not meet the

commitment. The terms of the SLA current at the start of the applicable

initial or renewal term of the Enrollment are fixed for the duration of that

term.

20. The agreement should be legally binding and properly executed. The

agreement should oblige vendors to comply with good business practices

that maintain the confidentiality and integrity of information and permit their

activities to be audited.

Part V, paragraph 1(c), Guidelines on Management of IT Environment

Yes.


The agreement is signed.

MBSA section 4(a)(i) deals with professional conduct. Microsoft warrants

that its services will be performed with professional care and skill.







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FSA.

21. If communications services are obtained from external service providers, the

institution should ensure that the roles and responsibilities and expected

service levels are defined in formal and enforceable agreements. The

agreement should specific arrangements for ensuring continuity of service

(i.e. detection and recovery from service interruptions).

Part VI, paragraph 3(c), Guidelines on Management of IT Environment

Yes.

The contract pack comprehensively sets out the scope of the arrangement

and the respective commitments of the parties. The SLA contains

Microsoft’s service level commitment, as well as the remedies for the

customer in the event that Microsoft does not meet the commitment.

Business Continuity Management forms part of the scope of the


Microsoft commits to maintain a data security policy that complies with



compliance audit.

22. The agreement should be legally binding and properly executed to protect

the institution’s interests. The agreement should oblige vendors to comply

with good business practices that maintain the confidentiality and integrity of

information, provide regular reports on network performance, maintain

continuity of services in the event of a disaster and permit the vendor’s

Part VI, paragraph 3(e), Guidelines on Management of IT Environment

Yes.


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activities to be audited. All of these points are covered, taking each in turn:

1. MBSA section 4(a)(i) deals with professional conduct. Microsoft

warrants that its services will be performed with professional care

and skill.

2. MBSA section 3 deals with confidentiality. Under this section

Microsoft commits not to disclose our confidential information

(which includes our data) to third parties and to only use our

confidential information for the purposes of Microsoft’s business

relationship with us. If there is a breach of confidentiality by

Microsoft, we are able to bring a claim for breach of contract

against Microsoft.

3. The customer may monitor the performance of the online services

via the administrative dashboard, which includes real time

information as to Microsoft compliance with its SLA commitments.

4. Business Continuity Management forms part of the scope of the

accreditation that Microsoft remains in relation to the online

services, and Microsoft commits to maintain a data security policy

that complies with these accreditations (see OST page 13).

5. The OST specifies the audit and monitoring mechanisms that

Microsoft puts in place in order to verify that the online services

meet appropriate security and compliance standards. This

commitment is reiterated in the FSA. Clause 1f of the FSA gives

the customer the opportunity to participate in the Microsoft Online

Services Customer Compliance Program, which is a for-fee

program that facilitates the customer’s ability to (a) assess the

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services’ controls and effectiveness, (b) access data related to

service operations, (c) maintain insight into operational risks of the

services, (d) be provided with additional notification of changes

that may materially impact Microsoft’s ability to provide the

services, and (e) provide feedback on areas for improvement in

the services.

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