If you’re a senior manager or a member of a board of a financial institution, you must be directly involved in many things, including vendor management. If there was any doubt about that, the OCC stamped it firmly in the record in 2013, in Bulletin 29-2013, which stressed the need for senior management and board involvement.
In fact, a quick glance through that bulletin and you’ll find it’s mentioned over a dozen times.
What the Regulatory Guidance Says
Let’s turn to the guidance and see specifically what it says – the following is an excerpt from the Oversight and Accountability section of OCC Bulletin 29-2013:
Oversight and Accountability
The bank’s board of directors (or a board committee) and senior management are responsible for overseeing the bank’s overall risk management processes. The board, senior management and employees within the lines of businesses who manage the third party relationships have distinct but interrelated responsibilities to ensure that the relationships and activities are managed effectively and commensurate with their level of risk and complexity, particularly for relationships that involve critical activities.
Board of Directors
- Ensure an effective process is in place to manage risks related to third party relationships in a manner consistent with the bank’s strategic goals, organizational objectives, and risk appetite.
- Approve the bank’s risk-based policies that govern the third party risk management process and identify critical activities.
- Review and approve management plans for using third parties that involve critical activities.
- Review summary of due diligence results and management’s recommendations to use third parties that involve critical activities.
- Approve contracts with third parties that involve critical activities.
- Review the results of management’s ongoing monitoring of third party relationships involving critical activities.
- Ensure management takes appropriate actions to remedy significant deterioration in performance or address changing risks or material issues identified through ongoing monitoring.
- Review results of periodic independent reviews of the bank’s third party risk management process.
Senior Bank Management
- Develop and implement the bank’s third party risk management process.
- Establish the bank’s risk-based policies to govern the third party risk management process.
- Develop plans for engaging third parties, identify those that involve critical activities, and present plans to the board when critical activities are involved.
- Ensure appropriate due diligence is conducted on potential third parties and present results to the board when making recommendations to use third parties that involve critical activities.
- Review and approve contracts with third parties. Board approval should be obtained for contracts that involve critical activities.
- Ensure ongoing monitoring of third parties, respond to issues when identified, and escalate significant issues to the board.
- Ensure appropriate documentation and reporting throughout the life cycle for all third party relationships.
- Ensure periodic independent reviews of third party relationships that involve critical activities and of the bank’s third party risk management process. Analyze the results, take appropriate actions and report results to the board.
- Hold accountable the bank employees within business lines or functions who manage direct relationships with third parties.
- Terminate arrangements with third parties that do not meet expectations or no longer align with the bank’s strategic goals, objectives or risk appetite.
- Oversee enterprise-wide risk management and reporting of third party relationships.
So, there you have it, clear as day – the responsibility goes all the way up to senior management and the board. No questions.
A good starting point to be involved is to make sure the financial institution has a vendor management Policy, Program and Procedures.
Download our Vendor Management Umbrella infographic series to learn more about these 3 documents.