OCC - Financial companies take heed, data security is necessary!

The Office of the Comptroller of the Currency (OCC) oversees and regulates national banks and federal savings associations, ensuring they operate safely and soundly while adhering to applicable laws. Capital market participants, such as banks and financial institutions, must comply with specific regulations set forth by the OCC, particularly concerning the management and exchange of data with third parties.

Key OCC regulations that apply to capital market participants and mandate keeping track of third-party data exchanges include:

1. OCC Bulletin 2013-29: Third-Party Relationships - Risk Management Guidance

This bulletin is central to how capital market participants manage their relationships with third parties. It highlights the need for proper risk management when outsourcing or sharing sensitive data with vendors or other third-party service providers. Key points include:

- Due Diligence: Banks and capital market participants are required to conduct thorough due diligence on third-party vendors, including those involved in data exchanges.

- Ongoing Monitoring: Financial institutions must establish and maintain robust oversight and monitoring processes for data exchanged with third parties. This includes regular audits, compliance assessments, and real-time tracking of what type of data is shared.

- Contractual Obligations: Contracts with third parties should explicitly detail data handling, sharing procedures, and security requirements, ensuring that sensitive data is adequately protected and that third-party vendors are held accountable.

2. OCC Bulletin 2020-10: FAQs on Third-Party Relationships

This bulletin reinforces the guidance provided in OCC 2013-29 and addresses specific questions about third-party risk management. It emphasizes that financial institutions must:

- Track Data Shared with Third Parties: Banks must maintain a comprehensive inventory of the types of data exchanged with each third-party provider, especially regarding customer data, financial records, and transaction details.

- Assess Data Security and Compliance: Institutions must ensure that third-party vendors comply with data protection regulations and implement adequate security measures to prevent unauthorized access or breaches.

3. OCC Bulletin 2017-7: Supplemental Examination Procedures for Third-Party Risk Management

This bulletin provides a framework for examiners assessing third-party risk management practices in financial institutions. It requires capital market participants to:

- Maintain Records of Data Exchanges: Institutions must document and review all third-party interactions, including the types of data being exchanged and the purpose of these exchanges.

- Evaluate Data Sharing Risks: Institutions should evaluate risks associated with the transfer of sensitive or confidential information to third parties, including legal, reputational, and compliance risks.

4. 12 CFR 30 Appendix D: Interagency Guidelines Establishing Information Security Standards

While this regulation applies broadly to information security, it contains specific provisions related to third-party data exchanges. Capital market participants are required to:

- Implement a Security Program: This includes ensuring that data shared with third parties is protected by appropriate security measures, such as encryption and secure access controls.

- Regular Audits and Monitoring: Financial institutions must regularly audit and monitor their third-party service providers to ensure they are handling data in compliance with security standards.

5. Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) Regulations

Although primarily aimed at preventing money laundering, BSA and AML regulations also affect how capital market participants track and report data exchanged with third parties. Financial institutions are required to:

- Maintain Records of Transactions and Customer Data: This includes documenting and monitoring data shared with third parties related to transactions, client information, and suspicious activities.

- Ensure Compliance with Know Your Customer (KYC) Regulations: KYC procedures necessitate that data exchanged with third-party vendors, particularly customer identity information, is accurately tracked and verified to prevent fraudulent activity.

Types of Data That Must Be Tracked

The OCC regulations require capital market participants to track various types of data exchanged with third parties, including:

- Customer Data: Personal identification information (PII), Social Security numbers, financial account details, and transaction histories.

- Financial Transaction Data: Trade executions, settlement information, payment records, and asset transfers.

- Risk and Compliance Data: Reports related to risk management, compliance audits, and regulatory filings.

- Credit and Loan Data: Information about loans, credit ratings, and financial agreements.

- Market and Trade Data: Real-time market data, trade order flow, and execution details.

By enforcing these regulations, the OCC ensures that capital market participants maintain strong data governance practices when sharing data with third parties. Effective tracking and management of this data are critical for regulatory compliance, operational integrity, and risk mitigation.

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