Federal Regulators Propose Overhaul of Third-Party Risk Management Guidance
The Federal Reserve, OCC, FDIC, and NCUA have jointly proposed updated guidance for third-party risk management in banking. This overhaul aims to address perceived limitations of the current framework, which has been criticized for promoting a one-size-fits-all approach.
The proposal places greater emphasis on tailoring oversight to the actual risks presented by each relationship, rather than treating all third parties as equally high-risk. Banking organizations would assess relationships based on both magnitude and likelihood of potential harm, allowing them to focus resources on higher-risk partnerships.
The updated guidance also recognizes residual risk, acknowledging that eliminating all third-party risk is not feasible or necessary. It clarifies that deviation from the guidelines will not, by itself, support supervisory action, unless it leads to law violations, unsafe practices, or other material risks.