Third-Party Risk Management, A Guide for Community Banks

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Community banks face a pressing challenge in effectively managing third-party relationships amidst an evolving financial landscape. With the issuance of the “Third-Party Risk Management, A guide for Community Banks,” (Guide) by the FDIC, Federal Reserve, and OCC, institutions are tasked with developing robust risk management frameworks tailored to their unique needs.

Treliant stands ready to assist community banks in navigating the complexities of third-party risk management. From designing comprehensive risk management programs and evaluating current programs to implementing effective policies and practices, Treliant offers specialized expertise to ensure compliance with regulatory guidelines and mitigate potential risks associated with third-party relationships.


The Guide discusses the importance of tailoring risk management practices to the level of risk presented by third-party relationships, emphasizing more rigorous practices for higher-risk activities.

Risk Management –

  • Risk Levels: Not all third-party relationships present the same level of risk. The oversight should match the level of risk.
  • Higher-Risk Activities: More rigorous practices are needed for third parties involved in higher-risk activities, including critical activities.
  • Risk Assessment: Periodic analysis of risks associated with each third-party relationship is crucial.
  • Involvement of Knowledgeable Staff: Bank staff with the necessary knowledge and skills should be involved in each stage of the risk management life cycle.

Engaging a third party does not dimmish or remove a bank’s responsibilities. Banks are still accountable for conducting activities in compliance with laws and regulations, regardless of third-party involvement.

Third-Party Risk Management Life Cycle –

  • Planning: This stage involves assessing potential risks and determining the necessary risk management resources for overseeing third-party relationships.
  • Due Diligence and Selection: In this phase, banks evaluate third parties’ capabilities and compliance with policies and regulations before forming a relationship.
  • Contract Negotiation: Banks negotiate contract terms to ensure they facilitate effective risk management and outline the expectations and obligations of both parties.
  • Ongoing Monitoring: Continuous monitoring of third-party performance is crucial to ensure they meet contractual obligations and manage risks effectively.
  • Termination: This final stage involves ending the relationship efficiently, considering the impact on operations and compliance, and transitioning activities if necessary.

Governance –

Governance throughout the life cycle includes Oversight and AccountabilityIndependent Reviews, and Documentation and Reporting. The board of directors is responsible for oversight, while management implements risk management policies and practices.

  • Oversight and Accountability: The board of directors is ultimately responsible for overseeing third-party risk management and ensuring management accountability.
  • Independent Reviews: Periodic independent reviews are crucial to assess the adequacy of third-party risk management processes.
  • Documentation and Reporting: Proper documentation and reporting facilitate control activities and vary depending on the complexity of third-party relationships.

These governance practices are essential throughout the third-party relationship life cycle to ensure effective risk management.

Banks must ensure that third-party activities are conducted in a safe and sound manner and comply with applicable laws and regulations, including consumer protection and financial crimes.

What This Means for Financial Institutions

The issuance of the Guide underscores regulators’ heightened focus on third-party risk management within the community banking sector. The guidance serves as a tool for community banks of all sizes to implement effective third-party risk management practices.

The fundamentals outlined in the guidance are essential for building and maintaining a robust risk management framework. Financial institutions must prioritize the development of robust risk management frameworks to effectively mitigate potential risks while leveraging the benefits of third-party relationships. Adhering to the guidance not only enhances compliance, but also fosters trust and resilience in the face of evolving regulatory expectations.

All community banks need to embrace a proactive stance towards third-party risk management, leveraging specialized expertise and resources to navigate complexities and ensure long-term success.

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