Third-Party Risk Management: A Guide for Community Banks
On May 3, 2024, The Federal Deposit Insurance Corporation (FDIC) released Third-Party Risk Management, A Guide for Community Banks.
What is the purpose of the Third-Party Risk Management Guide?
The FDIC’s guide serves as a comprehensive resource for navigating the complexities of managing third-party relationships within the banking sector. It covers crucial topics such as:
- Planning
- Due diligence
- Contract negotiation
- Ongoing monitoring
- Regulatory compliance
It is important to note that engaging a third party does not remove a bank’s responsibility to operate in a safe manner, nor does it relieve a bank of the risks or compliance requirements associated with the functions performed by a third party.
This guidance is a resource community banks may consider when developing third-party risk management programs, policies and procedures. It covers many of the same aspects as Interagency Guidance on Third-Party Relationships: Risk Management, but it is not intended to be a substitute for it.
What is covered in the Third-Party Risk Management Guide?
Key requirements highlighted in the guide include:
- Developing a risk-based approach to third-party risk management, with special considerations for critical activities that could cause banking organizations to face significant risk, have a significant impact on customers or impact financial condition or operations.
- Conducting thorough due diligence on third-party vendors before entering into contractual agreements as well as throughout the duration of the relationship.
- Implementing robust contract structuring to clearly define roles, responsibilities, and expectations.
- Establishing continuous monitoring mechanisms to assess the performance and compliance of third-party vendors.
- Adhering to regulatory guidelines and standards to mitigate legal and operational risks associated with third-party relationships.
Given the paramount importance of robust risk management practices in today’s dynamic business environment, BNN strongly encourages institutions to review this guide. It offers practical insights and best practices that can help a financial institution’s risk management framework.
Have questions about implementing strategies suggested in the guide?
If you have any questions or require assistance in implementing these strategies, you can reach out to Pawel Wilczynski or your BNN advisor. Our team can support financial institutions in mitigating risks and establishing and maintaining security and compliance in their IT environments.
Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.