3. Contract negotiation: Important to any third-party relationship is the negotiation of a contract that allows the bank to perform continuous and effective risk management practices. If there is difficulty in negotiating these imperative aspects with the third party, the institution needs to analyze the related risk and weigh whether it is acceptable to enter into a relationship. Importantly, the board of directors should be aware of negotiations to dispel its oversight responsibilities, whether through direct involvement or updates from an approved negotiating delegate. 4. Ongoing monitoring: Ongoing monitoring is imperative as institutions navigate a rapidly changing banking environment. Rising interest rates, tightening credit and liquidity constraints show that risks affecting financial service companies today look significantly different than they did a year ago. Technological advancements continue evolving at a swift pace, and the evolution of tools such as artificial intelligence brings different considerations and capabilities to the industry with unique risks. Establishing different techniques or mechanisms to track the risk landscape and determine the emerging risks are just as important to monitoring as a cadence of regular reviews over current risks. The agencies did not outline “any specific approach to ongoing monitoring. Rather, the guidance continues to state that a banking organization’s ongoing monitoring, like other third-party risk management processes, should be appropriate for the risks associated with each third-party relationship, commensurate with the banking organization’s size, complexity and risk profile and with the nature of its third-party relationships.” 5. Termination: Lastly, if an institution has decided the relationship has run its course, terminating it efficiently and timely will be beneficial. The institution should consider transitioning any service provided through the relationship to another third party or bringing it in-house. GOVERNANCE In addition to the points above about the broader third-party risk management life cycle, the regulators highlighted three critical governance practices for such relationships: Oversight and accountability: The guidance indicates that the board of directors is ultimately responsible for the oversight of third-party risk management. This responsibility includes providing management with guidance on the acceptable level of risk appetite to enter into such third-party relationships, as well as approving management policies and procedures. Independent reviews: Critical to the process is conducting independent, periodic reviews to assess the adequacy of the risk management process. The guidance further calls out that such reviews should assess management’s processes, procedures and controls for adequacy and effective operation. Documentation and reporting: To support compliance with the new guidance, institutions will need to thoroughly document their third-party risk management processes, procedures and outcomes of related independent reviews. Risk management necessitates perpetual enhancement. It is a continuous, forever-evolving process of identifying, assessing and managing risks that affect the company. As institutions continue to partner with third parties to offer new capabilities, remaining vigilant by incorporating the five key points from the guidance is essential. These techniques help safeguard the stability, trust and sustainability of the financial services industry. Brandon Koeser is a senior analyst in RSM’s cuttingedge Industry Eminence Program, positioning him to understand, forecast and communicate economic, business and technology trends shaping the industries RSM serves. Brandon’s focus is on advising financial institution and capital markets leaders and clients on business conditions, industry trends and regulatory developments influencing their ecosystems across North America. Angela Kramer is a certified public accountant and senior assurance manager at RSM US, LLP, where she serves companies in the financial services industry. As a senior analyst, Angela focuses on the financial institutions sector of the financial services industry. She works alongside the firm’s chief economist and other program participants to analyze trends and themes shaping the landscape for middle market businesses. Utah Banker 15
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