The Federal Reserve, FDIC, and OCC have recently released interagency guidance on managing risks associated with third-party relationships.
The proposed guidance offers a framework based on sound risk management principles and best practices that financial institutions supervised by the issuing agencies can use to address third-party risks.
Stressing the importance of adequately evaluating and managing risks associated with third-party relationships, the guidance emphasizes some baseline assumptions and criteria, including:
It also outlines the third-party risk management lifecycle and principles for each stage, including:
Organizations need to be proactive in setting internal standards for robust risk management, building capabilities to anticipate emerging risks and address uncertainty.
For institutions with a mature, integrated governance, risk, and compliance (GRC) management program, these guidelines are nothing new. But many organizations struggle to integrate their third-party management processes with other risk and compliance activities and data — which results in an incomplete understanding of risk exposure.
Effective third-party risk management (TPRM) requires a strategy that aligns with objectives and connects business functions, processes, and information across the organization. This facilitates transparency and supports consistent policies and procedures.
An integrated, technology-enabled TPRM framework facilitates:
An effective, efficient, and agile third-party risk management program needs to be a seamless part of your organization’s operations and embedded within your corporate culture. Developing an integrated approach requires significant effort across all organizational levels, as well as the three lines of risk management. For institutions that want to keep pace with regulatory requirements and gain a competitive advantage, the effort is a strategic investment in risk management maturity and operational resilience.