FDIC Issues New Guidance on Third-Party Risk Management for Community Banks

May 30, 2024
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Key Takeaways

  • The responsibility for safe and sound banking practices ultimately rests with the bank itself.
  • Community banks should proactively address risk by creating their own standards for third-party relationships.
  • Key elements of an effective risk management program include due diligence, clear contracting, and ongoing monitoring.

The Federal Deposit Insurance Corporation (FDIC) recently released a valuable resource for community banks: Third-Party Risk Management – A Guide for Community Banks.

This guide highlights the importance of effective third-party risk management (TPRM) practices for community banks and provides practical guidance for developing and implementing a sound TPRM program.

Why is TPRM Important for Community Banks?

Community banks rely on third-party vendors to perform various essential functions, from technology services and loan processing to cybersecurity and physical security. While these partnerships offer numerous benefits, they also introduce new risks. A third-party failure could significantly impact a bank's operations, reputation, and financial health.

The FDIC's guide emphasizes that the responsibility for safe and sound banking practices ultimately rests with the bank itself, regardless of third-party involvement. With this new guide, the FDIC aims to equip community banks with the tools necessary to manage these risks effectively.

Key Takeaways from the FDIC Guide:

  • The Importance of a Risk-Based Approach: The guide encourages community banks to adopt a risk-based approach to TPRM. This involves identifying critical third-party relationships, assessing the potential risks associated with each relationship, and implementing controls aligning with the level of risk.
  • Key Considerations for TPRM Programs: The guide outlines critical elements of a TPRM program, including:
    • Due diligence: Performing a thorough evaluation of potential third parties before entering into a relationship.
    • Contracting: Ensuring contracts clearly define roles, responsibilities, and expectations regarding risk management.
    • Ongoing monitoring: Continuously assessing the performance and risk profile of third parties.
    • Incident response: Establishing a clear plan for responding to potential incidents or breaches involving third parties.
  • Scalability for Community Banks: Recognizing the resource limitations of community banks, the FDIC emphasizes that TPRM programs should be scalable and proportionate to the size and complexity of the bank's operations.

How Eide Bailly Can Help

We understand the challenges and opportunities associated with third-party relationships. We can assist your community bank in developing and implementing a robust TPRM program tailored to your specific needs. Our services include:

  • TPRM Program Assessment: Evaluating your existing TPRM practices and identifying areas for improvement.
  • Guidance on Regulatory Compliance: Helping you navigate FDIC guidance and other regulatory requirements related to TPRM.
  • Development of TPRM Policies and Procedures: Creating customized policies and procedures for managing third-party relationships effectively.
  • Risk Management Training: Equipping your staff with the knowledge and skills necessary to assess and mitigate third-party risks.

Together, we can help your community bank minimize the risks associated with third-party relationships and ensure your continued success.

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