Agencies Issue Guide to Help Community Banks Manage Third-Party Risks

Agencies Issue Guide to Help Community Banks Manage Third-Party Risks


The Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and Federal Reserve Board have issued new guidance to assist community banks in developing and implementing effective third-party risk management practices.

The guidance, titled "Third-Party Risk Management: A Guide for Community Banks," provides considerations for banks throughout the life cycle of third-party relationships. It emphasizes that more rigorous oversight should be applied to relationships involving higher-risk activities or critical functions outsourced to vendors.

The five life cycle stages covered in the guidance are planning, due diligence and third-party selection, contract negotiation, ongoing monitoring, and termination. Example scenarios illustrate how recommended risk management practices can be implemented by community banks.

For higher-risk third-party relationships, such as those involving core banking systems or access to sensitive customer data, the agencies advise conducting enhanced due diligence upfront, negotiating strong contract provisions, and continuously monitoring the third-party's performance.

The guidance highlights the importance of having a strong governance framework, including board oversight, comprehensive documentation, periodic independent reviews, and allocating sufficient staffing resources. It also covers regulatory expectations in key areas like data security, business continuity planning, and compliance requirements.

The new guidance is intended to provide community banks with the flexibility to scale third-party risk management practices based on their specific circumstances and risk profiles. Effective third-party risk management is emphasized as an integral part of ensuring community banks' safe and sound operations.

The full "Third-Party Risk Management: A Guide for Community Banks" guidance is effective immediately and can be found on the OCC, FDIC and Federal Reserve Board's websites.

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