Banks Gain Flexibility in Revised Third-Party Risk Management Guidance

The US federal banking agencies have proposed revised third-party risk management guidance that would replace an earlier 2023 version. The proposal is designed to provide a more flexible approach, allowing banks to focus on the magnitude and likelihood of risks posed by each third-party relationship.

According to the agencies, the prior guidance was often interpreted too broadly and led to an 'overly-process-driven' approach, rather than tailored risk-based judgment. The new proposal aims to address this issue by giving institutions more freedom to assess their own risk profiles.

The Federal Reserve Board has also proposed a companion guide for traditional community banks, while the OCC, Federal Reserve Board, and FDIC have issued a joint statement highlighting concerns about the potential impacts of core service providers on community banks.