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Interagency Guidance on Third-Party Relationships: How well does your Vendor Management Program align?

Outsourcing any part of your Bank's operations can mean exposing the organization to various risks that may affect its performance, reputation, and compliance. However, correctly managing third-party vendor relationships can provide many benefits, such as reducing costs, increasing efficiency, accessing specialized skills, and improving customer satisfaction. Interagency Guidance on third-party relationships offers a step-by-step process that you can use to create your vendor management program and ensure you are meeting your obligations as part of an effective enterprise risk management program.

What is Interagency Guidance? The Interagency Guidance on Third-Party Relationships is a document jointly issued by multiple U.S. regulatory agencies, including the Office of the Comptroller of the Currency (OCC), the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and others. This Guidance provides a framework for financial institutions, including small banks, to manage the risks associated with third-party relationships. It outlines best practices and risk management strategies when engaging with third-party entities.

Key aspects covered include:


Risk Management: This section emphasizes the importance of assessing and managing risks associated with third-party relationships, considering factors like reputation, compliance, and operational risks. 

Due Diligence: Recommends conducting thorough due diligence when selecting and entering relationships with third parties. This involves evaluating their financial stability, compliance with laws and regulations, and overall reliability. 

Contract Structuring: This section guides structuring contracts with third parties to ensure that expectations, responsibilities, and performance standards are clearly defined.


Oversight and Monitoring: Highlights the need for ongoing supervision and monitoring of third-party relationships throughout their lifecycle. This includes regular assessments of the third party's performance and compliance with agreed-upon terms. 

Compliance: Stresses the importance of ensuring third-party relationships align with applicable laws, regulations, and the institution's policies. 

Exit Strategies: Addresses the development of exit strategies, allowing the institution to terminate or transition relationships with third parties in an orderly manner if needed. 

The Guidance aims to assist in effectively managing the complexities and potential risks of relying on third-party relationships by creating a structured approach to enhance transparency, accountability, and resilience in the financial industry. 

Is your vendor management program meeting your Bank's needs? Contact Virtual Innovation for expert advice in assessing your vendor and risk management solutions.


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