U.S. Agencies Issue Guide to Assist Community Banks to Develop and Implement Third-Party Risk Management Practices

? The "Third-Party Risk Management: A Guide for Community Banks," recently issued by the Federal Reserve, FDIC, and the Office of the Comptroller of the Currency (collectively, the Agencies), outlines risk management strategies for community banks engaging with third-party vendors. This guide supplements the Interagency Guidance on Third-Party Relationships: Risk Management from June 2023. It emphasizes that third-party engagements can extend community banks' capabilities and access to new technologies and markets but also introduce and amplify risks such as operational, compliance and strategic risks. Banks remain accountable for these risks and for ensuring activities are carried out in compliance with applicable laws.

? Lifecycle of Third-Party Relationships: This consists of planning, due diligence, contract negotiation, ongoing monitoring, and termination. Each stage requires specific considerations: Planning: Identifies potential risks and ensures alignment with the bank’s strategic goals; Due Diligence: Assesses the third party’s capabilities and compliance with legal and regulatory requirements; Contract Negotiation: Focuses on defining terms that safeguard the bank’s interests and facilitate effective risk management; Ongoing Monitoring: Ensures that the third party meets performance and compliance standards throughout the relationship; Termination: Manages the discontinuation of the relationship while minimizing impact on the bank’s operations.

? Governance: Stresses the importance of oversight and accountability, with the bank's board being ultimately responsible for third-party risk management.

Original source: third-party-risk-management-guide-20240503.pdf (federalreserve.gov)