FDIC issues guidance on third-party risk

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WASHINGTON, DC – The Federal Deposit Insurance Corporation (FDIC) has issued guidance on how to handle the potential risks arising from third-party relationships. The paper outlines risk management principles that may be tailored to suit the complexity and risk potential of a financial institution's significant third-party relationships.

The paper outlines the potential risks that may arise from the use of third parties and addresses the following four basic elements of an effective third-party risk management programme: risk assessment; due diligence in selecting a third party; contract structuring and review and oversight.

It also highlighted the fact that the board of directors and senior management of a financial institution are ultimately responsible for managing activities conducted through third-party relationships, and identifying and controlling the risks arising from such relationships, to the same extent as if the activity were handled within the institution.

The guidance is intended to supplement the principles contained in policy guidance that has previously addressed third-party risk in the context of specific functions, such as information technology. And is intended to assist in the effective management of third-party relationships, and should not be considered as a set of required procedures, said the FDIC.