Third-party management: The process of managing and overseeing activities and responsibilities that are outsourced to a third party, such as a vendor or contractor

Performance measures should not incentivize undesirable performance, such as for example encouraging processing volume or speed regardless of accuracy, compliance requirements, or undesireable effects on customers.
Industry standards for service-level agreements might provide a reference point for standardized services, such as payroll processing.
Assigning clear roles and responsibilities for managing third-party relationships and integrating the bank’s third-party risk management process using its enterprise risk management framework enables continuous oversight and accountability.
An effective risk management process throughout the life cycle of the relationship includesplans that outline the bank’s strategy, identify the inherent risks of the experience, and detail how the bank selects, assesses, and oversees the 3rd party.

The PRA’s aim according of outsourcing is for firms to use adequate governance and controls for all third-party dependencies that could impact its statutory objectives.
An appointment paper published by the PRA with this topic in December 2019 aimed to implement and further elaborate on the outsourcing guidelines from the European Banking Authority .
We partner with client’s to provide expertise exactly where its needed, and deliver bespoke programmes providing risk assurance, information security, and regulatory compliance.
When confronted with growing cyber security threats and compliance requirements, vast amounts of enterprises are seeking to determine the exposed risk and implement ways of manage it.

The OCC expects banks to have more comprehensive and rigorous management of third-party relationships that involve critical activities.
Additionally, effective contracts enable the banking organization to terminate the relationship upon reasonable notice and without penalty when the banking organization’s primary federal banking regulator formally directs the banking organization to terminate the relationship.
Consider whether the third party maintains adequate types and amounts of insurance , notifies the banking organization of material changes to coverage, and evidence of coverage where appropriate.

Third-party Relationships: Risk Management Guidance

Ensure that the contract requires the 3rd party to provide the lender with operating procedures to be completed in the case business resumption and disaster recovery plans are implemented.
Include specific time frames for business resumption and recovery that meet up with the bank’s requirements, so when appropriate, regulatory requirements.
Stipulate whether and how usually the bank and the third party will jointly practice business resumption and disaster recovery plans.
Ensure the contract provides for continuation of the business enterprise function in the event of problems affecting the 3rd party’s operations, including degradations or interruptions resulting from natural disasters, human error, or intentional attacks.

• Examiners should think about the adequacy of due diligence in the areas below, given credit unions’ risk profiles, internal controls, and overall complexity.
• Stipulate whether and how usually the banking organization and the third party will jointly test business continuity plans.
• The banking organization’s board of directors and management are responsible for overseeing the banking organization’s overall risk management processes.
• A qualified subject material expert should review owner information and provide an expert opinion concerning the sufficiency of the vendor’s controls.

Not all of the following risks will be applicable to every third-party relationship; however, complex or significant arrangements may have definable risks generally in most areas.
The financial institution’s board of directors and senior management should understand the nature of the risks in the context of the institution’s current or planned use of third parties.
This guidance provides a general framework for the implementation of a highly effective third-party risk management process.
This guidance does not supersede previously issued FDIC and interagency help with managing third-party risk in the context of specific functions or activities.
Also, transactions with affiliated entities remain at the mercy of sections 23A and 23B of the Federal Reserve Act—the specific requirements of which aren’t addressed here.
FINRA encourages firms that use—or are contemplating using—Vendors to examine the following obligations and assess whether their supervisory procedures and controls for outsourced activities or functions are sufficient to keep compliance with applicable rules.

to the brand new OCC and Federal Reserve regulations released in late 2013, and is generally ahead of other industries in its practices.
In 2014, the COSO-driven focus on third parties was in the context of financial reporting; in 2015 we are starting to see the focus shift to operations and compliance.

Business Continuity And Contingency Plans

The institution should think about whether the contract will include a dispute resolution process for the purpose of resolving problems expeditiously.
Continuation of the arrangement between your parties during the dispute should also be addressed.
After completing homework and choosing the Vendor, firms may decide to consider investing in place a written contract with owner that addresses, among other things, both the firm’s and the Vendor’s roles with respect to outsourced regulatory obligations.
A Vendor exposed to the public internet the firms’ purchase and sales blotters, which included customers’ nonpublic private information (e.g., names, account numbers, and social security numbers).

• Additionally, commensurate with the chance of the activity, the contract should supply the firm the proper to monitor the 3rd party’s compliance with applicable laws, regulations, and policies; conduct periodic reviews to verify adherence to expectations; and require remediation when issues arise.
• Notify the 3rd party of significant operational issues at the lender that may affect the 3rd party.
• an institution is under time constraints to improve third-party vendors and must follow an aggressive conversion time frame to end the partnership with its previous vendor.
• The total amount and formality of the due diligence performed may vary according to the estimated threat of the outsourced relationship and the institution’s familiarity with the prospective third-party vendor.
• The third-party risk register provides guidance for the enterprise’s required action and follow-up.
• Federal savings associations are subject to similar requirements set forth in 12 U.S.C. 1464 and 1867.

For more information on forms of audits and control reviews, make reference to appendix B of the “Internal and External Audits” booklet of the Comptroller’s Handbook.
Conformity assessment with domestic or international standards can be considered with respect to the the areas of consideration during homework mentioned above.
○ determining if the risk to the bank of having limited negotiating power is at the bank’s risk appetite.
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Management Of Information Systems

The institution should integrate vendors’ business continuity plans into its plan, communicate roles and responsibilities to the correct personnel, and maintain and periodically review the combined plan.
Because of the potential cybersecurity threat of external network connections, an institution should ensure that these connections are appropriately monitored and controlled.
To improve and enhance monitoring effectiveness, management should periodically rank third-party vendor relationships in accordance with their risk profile to determine which vendors require closer monitoring.
Management should base the rankings on the residual risk of the relationship after analyzing the number of risk in accordance with the controls over those risks.