U.S. banking regulators propose updated third-party risk management guidance

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US banking third-party risk guidance

Highlights

U.S. regulators including the OCC, Federal Reserve, FDIC, and NCUA issued proposed guidance updating the supervisory framework for third-party risk management.
The updated guidance directs banks and credit unions to align oversight of external relationships with reasonably assessed risks based on size, complexity, and nature of each relationship.
Comment period for the proposed guidance is set at 60 days after publication in the Federal Register, with non-compliance not triggering formal supervisory action.

Proposal updates supervisory framework

As reported by the Office of the Comptroller of the Currency, the proposed guidance is being issued by the OCC in coordination with the Federal Reserve Board, the Federal Deposit Insurance Corporation and the National Credit Union Administration.

The agencies say the revision draws on supervisory experience and lessons learned from examinations of banking organizations' third-party risk management practices. The guidance emphasizes that institutions should align those practices with reasonably assessed risks tied to each outside relationship, taking into account the organization's size, complexity and overall risk profile, as well as the nature of the relationship itself.

Comments are due 60 days after publication of the proposed guidance in the Federal Register.

Implications for banks and credit unions

The proposal is intended to help banking organizations prioritize third-party risk management based on the magnitude and likelihood of potential harm arising from those relationships. It also seeks to avoid overly process-driven approaches that treat all third-party arrangements as inherently high risk.

The agencies state that non-compliance with the guidance will not result in supervisory action against a banking organization. The update instead serves as a framework for institutions to tailor oversight of vendors, partners and other external providers more closely to actual risk exposure.

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