Agencies promise more scrutiny of core provider business practices

The federal banking agencies pledged late last week to step up oversight of third-party core providers whose business practices “unreasonably limit” community banks from conducting due diligence or from negotiating contract terms that address the banks’ business needs.

The FDIC, Federal Reserve and Office of the Comptroller of the Currency issued a joint statement “to provide clarity on their risk-based supervision of certain services provided to community banking organizations,” or CBOs.

In addition, they proposed joint guidance with the National Credit Union Administration to assist financial institutions in better tailoring third-party risk management practices to the risk levels specific to each third-party relationship.