Takeaways from FDIC’s Guidance on Third-Party Relationships

Understanding FDIC's Third-Party Risk Management

The Federal Deposit Insurance Corporation (FDIC) offers comprehensive guidelines for banks engaging with third-party service providers. As a banktech company providing risk management software, it’s vital to ensure our solutions align with these regulatory standards. This blog post delves into the key takeaways from the FDIC’s guidance and discusses their implications for banktech partnerships with banks.

Operational and Managerial Standards

Banks must ensure that activities conducted by third-party providers adhere to their own operational and managerial standards. This includes managing and mitigating potential risks that could impact the bank’s operations - especially if you’re deemed a critical vendor of their services. For banktechs, our software solutions must facilitate compliance with these standards, providing banks with robust risk management capabilities and regulatory compliant SLAs.

Information Security

Protecting sensitive data is a critical aspect of third-party risk management. Banks are required to implement stringent information security measures. As a result, Banktech software must ensure data protection and comply with these security standards to provide banks with confidence in our data handling practices.

Risk-Based Approach

Lifecycle Management The FDIC emphasizes a risk-based approach throughout the lifecycle of third-party relationships. This approach includes:

• Due Diligence: Before entering into a relationship with a third-party provider, banks must conduct thorough due diligence. This involves evaluating the provider’s financial stability, compliance history, operational capabilities, and potential risks. Not to mention formal audits of regulatory-relevant standards such as SOX. It’s up to banktechs and fintechs to be ready when the time comes in order to continue moving forward with the partnership.
• Ongoing Monitoring: Continuous monitoring of third-party activities is essential to ensure compliance and risk management - along with the development of programmatic notifications for when key KPIs breach any relevant thresholds. Worst case these two entities need to communicate transparently and proactively.
• Regulatory Compliance: Banks and other financial institutions have an obligation to comply with relevant regulations, including the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) standards to name a few well-known ones. Some of the more arduous standards to adhere to are related to data privacy and financial statement controls. This is a massive undertaking alone, and then consider that banks need to balance these obligations while maximizing profits. Banktech solutions must be designed to help banks meet these regulatory requirements effectively, ensuring compliance and mitigating potential risks, while bolstering their bottom line.

Tailored Guidance for Community Banks

Community Bank Resources The FDIC provides specific resources and guides tailored to community banks. These resources help smaller institutions navigate the complexities of third-party relationships, ensuring they can partner with fintech & banktech companies while maintaining compliance and mitigating risks. Our software can support community banks by offering scalable risk management solutions that align with FDIC guidelines while unlocking more potential for their bottom line.

Implications for Banktech and Fintech Partners

Enhancing Due Diligence Prep Long sales cycles are made significantly longer when you are not prepared for the rigorous due diligence that banks have to go through. Multiple years of financials (ideally audited), along with tax returns, plus proof of audit on key regulations like SOX. This is a large and expensive undertaking for startups, so be sure to communicate where these asks become overly arduous for the business.

Streamlining Monitoring and Compliance By automating the ongoing monitoring of third-party activities, our software helps banks ensure continuous compliance with FDIC guidelines. This reduces the administrative burden on banks, allowing them to focus on their core operations, and higher leverage activities, while maintaining a high level of oversight over third-party activities.

Supporting Regulatory Requirements Our solutions are designed to support banks in meeting their regulatory obligations, including AML compliance, data security, and risk reporting. By ensuring our software aligns with FDIC standards, we help banks maintain compliance and mitigate potential risks associated with third-party relationships. Not to mention provide additional insight and transparency into their own systems to further enhance their capabilities to interact with regulators efficiently and effectively.

Conclusion

For fintech and banktech companies providing risk management solutions, aligning with FDIC guidelines on third-party relationships is crucial. By understanding and integrating these principles into our software, we help banks manage risks effectively, ensure regulatory compliance, and foster successful partnerships.

To learn more about the FDIC’s guidance on third-party relationships, visit their resource page.