What Was Proposed
Regulators rolled out a proposal outlining how banks and credit unions should approach risks that come with working with outside firms. The stated aim is to help institutions "better align and tailor their third-party risk management practices to the risks of individual third-party relationships."
The Federal Reserve, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the National Credit Union Administration put forward the plan jointly. It is open for public comment and would not carry the force of a binding rule.
Why Regulators Are Doing This
Federal Reserve staff said in a memo that banks are increasingly outsourcing certain roles to cut costs and improve efficiency. As those relationships grow, regulators are looking to give institutions a clearer framework for sizing the oversight to the actual risk.
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How Oversight Would Work
The agencies said their supervision of these risks would center on a principles-based approach. The guidance is designed to assist institutions and does not impose binding requirements.
The Debate and What It Means
Federal Reserve Governor Michael Barr opposed the proposal, pointing to concerns about the "material financial risk" standard. The move highlights that supervisors are sharpening their focus on third-party relationships as outsourcing grows, while still seeking feedback before locking anything in.
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