OCC's Bank Supervision Operating Plan for 2023: 3 Third-Party Risk Highlights

Each year, the OCC publishes its supervisory priorities for the next fiscal year in the annual Bank Supervision Operating Plan. All national banks should take the time to understand these priorities, as they apply equally to large, mid-sized, and community banks. It’s also worth noting that the OCC’s plan often reflects the priorities of other state and federal bank regulators and it can also be a useful guide for non-OCC institutions.

If you’re already familiar with annual OCC supervisory plans, you might recognize that third-party risk management has been a consistent area of focus for many years. Still, that doesn’t mean that the concerns remain static. As the third-party risk management landscape evolves, the OCC continues to adjust its supervisory focus to reflect new and emerging risks.

While the 2023 Bank Supervision Operating Plan is recommended reading for all financial institutions, the following summary is an interpretation of the OCC's supervisory priorities as they relate to third-party risk management for 2023.

Third-Party Risk Management Expectations Summary 

Third-party risk is here to stay. As such, the OCC expects a fundamental level of risk management in those relationships. The plan specifies third-party risk management focus areas and additional risks that may be applied directly to third-party risk management.  

Here are the highlights:

Third parties and related concentrations: A financial institution must demonstrate proper risk-based management and governance of third parties. This means that risk attributes of third-party relationships are correctly identified and managed. There is a heightened focus on third parties that are:

• Critical to bank operations
• Integral to organizational business continuity and resiliency
• Customer-facing 
• Subject to compliance requirements 
• Representing concentration risk
• Fintech companies

Operational resilience and cybersecurity: Organizations must monitor cyber threats, control breakdowns, and address risk management gaps that can impact operational risk. An organization should maintain increased focus on the following aspects of third-party risk management:

• Evaluate third-party incident response and resumption practices with an emphasis on data backup and recovery.
• Evaluate third-party information and cybersecurity practices by focusing on a third party’s ability to identify, detect, and prevent threats and vulnerabilities. Be sure to verify controls including authentication, access control segmentation, patch management, and end-of-life programs.
• Examiners will focus on a bank’s assessments of their third parties’ cybersecurity risk management and resilience capabilities.

Safety, soundness, and fairness: Weaknesses in talent management processes could lead to control breakdowns, untimely completion of material audits or other reviews, or failure to comply with rules and regulations that lead to customer impacts. In terms of third-party risk management, this concept can be applied directly.

• Examiners will consider if the bank and its third parties have sufficient, qualified staff to manage risks, and meet their contractual obligations.

Overall, the 2023 Bank Supervision Operating Plan emphasizes the importance of third-party risk management and governance as well as the importance of third-party cybersecurity, business continuity, resilience, and compliance in the new year.