FDIC, OCC, and Federal Reserve Seek Comment on Third-Party Relationships Guidance
The Federal Deposit Insurance Corp. (FDIC), the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency (OCC) recently proposed guidance outlining the risks financial institutions face as they increasingly rely on third parties like affiliates, vendors, and fintech companies for products and services.
The guidance offers a risk-management framework for these relationships and is intended to promote compliance with laws concerning consumer protection. It takes into account the level of risk, the complexity and size of the banking organization, and the nature of the third-party relationship. The regulators are now seeking comment on their proposed guidance.
Third parties often offer considerable advantages for banks, including faster and more efficient access to new technology, human capital, and new markets. “The regulators felt it was important enough to talk about these issues in a unified way. That’s significant,” said Daniel Stipano, a partner at law firm Davis Polk & Wardwell LLP, according to the Wall Street Journal.
The proposed guidance would replace the agencies’ current guidance on third-party relationships, as it reflects renewed attention from regulators as banks increasingly look to third parties to provide services such as accounting, core bank processing, human resources, and loan servicing.
Additionally, the guidance addresses more modern issues like data privacy and security. David Schwartz, president and chief executive of Florida International Bankers Association, also noted that it could serve as a way for regulators to see banks’ existing practices in managing third-party relationships and to address any concerns.
“They have been seeing this in their exams and the advance of technology, so there is an increase of use of third parties with these innovative products and the new technology,” Schwartz said. “That could be a concern⎯where there is something new, there are always heightened concerns in how you manage those risks.”