Outsourcing has become a critical component of financial institutions’ management of their business operations and control of their costs. In addition, institutions are outsourcing increasingly complex and sensitive banking and financial operations to third parties. In light of these developments, the Office of the Controller of the Currency (OCC) and the Federal Reserve Board (FRB) recently issued guidance on how financial institutions should manage third-party risks.
The guidance issued by each agency has particular relevance to outsourcing transactions and provides companies with a roadmap of the key areas of concern to regulators. Institutions also should expect that regulators will ask them to compare their policies and procedures against the new OCC and FRB guidance.
As discussed below, many of the suggestions in the OCC and FRB guidance concern provisions of outsourcing agreements (such as subcontracting) where vendors often push back. Financial institutions can therefore use the guidance to support and bolster their position when negotiating these provisions with vendors.
We summarize the OCC and FRB guidance below and include (in bold italics) our comments and key take-aways.
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