Third-Party Risk: A Guide for Community Banks

A recent interagency third-party risk management guide for community banks underscores the critical importance of robust TPRM practices. In a new RMA Journal article, expert and former regulator John Eckert shares valuable insights tailored for community banks looking to optimize compliance with new interagency guidance. 

As Eckert highlights, engaging third parties does not free banks from the responsibility to maintain safety, soundness, and regulatory compliance. Here are his key recommendations: 

• Leadership and Structure: Eckert stresses the necessity of appointing a designated TPRM leader within banks, responsible for overseeing third-party relationships and ensuring adherence to regulatory standards. 

• Policies and Procedures: Banks, regardless of size and complexity, must have comprehensive TPRM policies and supporting documentation. Eckert emphasizes the importance of aligning these policies with regulatory expectations and ensuring consistency across all documentation for regulatory review. 

• Governance and Oversight: Eckert advises community banks to involve executive management strategically in high-risk third-party engagements while optimizing efficiency through structured committee meetings. He highlights the importance of a uniform issue-management process to facilitate effective decision-making. 

• Risk Identification: Customizing risk assessments is pivotal in categorizing critical third-party relationships, considering potential financial and operational impacts. Eckert underscores the need for clear risk criteria aligned with regulatory guidelines to guide risk management practices effectively. 

• Monitoring and Termination: Continuous monitoring of third-party activities is essential to identify and mitigate emerging risks promptly. Eckert recommends establishing robust termination procedures that adhere to contractual obligations and regulatory requirements. 

Eckert concludes by advocating for an integrated approach to TPRM that aligns with broader risk management strategies at community banks. He encourages ongoing refinement of TPRM frameworks to adapt to the evolving regulatory landscape and ensure operational resilience. 

Want to dig deeper? Join Eckert for an exclusive, on-demand webcast here.