The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency released a joint statement addressing potential risks associated with banks’ arrangements with third parties to deliver deposit products and services.
The statement highlights the importance of responsible innovation while emphasizing the need for banks to maintain safe and sound practices in compliance with applicable laws and regulations. It focuses on arrangements where third parties, rather than banks themselves, market, distribute, or facilitate access to deposit products directly to end users.
InferIQ reviewed the Federal Regulators’ Joint Statement, summarized the key points from the 11-page document, and extracted crucial information, saving bankers significant time. Key highlights are listed below:
Key Highlights
- Potential Risks:
- Operational and compliance risks from relying heavily on third parties
- Fragmented operations among multiple third parties
- Insufficient access to crucial data and records
- Challenges in meeting regulatory requirements
- Growth-related risks, including misaligned incentives and rapid balance sheet expansion
- End user confusion regarding deposit insurance coverage
- Risk Management Considerations:
- Effective board and senior management oversight
- Developing appropriate policies, procedures, and risk assessments
- Conducting thorough due diligence on third parties
- Establishing clear contractual agreements
- Implementing robust ongoing monitoring processes
- Specific Risk Management Practices:
- Maintaining clear understanding of management information systems
- Developing contingency plans for potential operational disruptions
- Implementing strong internal controls for deposit functions
- Ensuring compliance with anti-money laundering and sanctions requirements
- Managing growth, liquidity, and capital implications Addressing potential misrepresentations of deposit insurance coverage
The Regulatory Landscape:
- Issuing bodies: Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency
- Focus: Arrangements where third parties market, distribute, or facilitate access to deposit products directly to end users
- Scope: Applies to all banks, regardless of size or complexity
The regulators emphasize that banks remain responsible for compliance with all applicable laws and regulations, even when relying on third parties to perform certain activities. They encourage banks to review existing guidance on third-party risk management and to implement risk management practices commensurate with the complexity and nature of their third-party arrangements.
This statement serves as a reminder for banks to carefully consider the risks associated with innovative deposit product arrangements and to implement appropriate risk management strategies. By doing so, banks can pursue responsible innovation while maintaining the safety and soundness of their operations and protecting the interests of their customers.
For more detailed information, banks are encouraged to review the full joint statement and consult the list of resources provided by the regulators, which includes various existing guidance documents and examination manuals relevant to third-party risk management and deposit-related activities.
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