# Joint Statement on Banks' Arrangements with Third Parties: Key Takeaways
In a recent joint statement, federal banking regulators addressed the potential risks associated with banks' arrangements with third parties to deliver deposit products and services. This blog post summarizes the key points from this important guidance.
## Background
The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency issued this statement to highlight risks and best practices related to banks partnering with third parties, including fintech companies, to offer deposit products and services.
## Potential Risks
The regulators identified several areas of potential risk:
1. **Operational and Compliance Risks**
- Overreliance on third parties for crucial deposit operations
- Fragmented operations among multiple third parties
- Lack of access to essential records and data
- Insufficient oversight of third parties performing regulatory compliance functions
- Inadequate risk management for consumer protection obligations
2. **Growth-Related Risks**
- Misaligned incentives between banks and third parties
- Operational capabilities lagging behind rapid growth
- Financial risks from funding concentrations
- Challenges in managing emerging liquidity risks
- Pressure on capital levels due to rapid balance sheet growth
3. **End User Confusion and Deposit Insurance Misrepresentation**
- Potentially misleading statements and marketing about deposit insurance
- Risk of regulatory violations related to deposit insurance representations
## Risk Management Considerations
The statement outlines several risk management practices for banks to consider:
1. **Governance and Third-Party Risk Management**
- Develop and maintain appropriate policies and procedures
- Conduct thorough risk assessments
- Perform comprehensive due diligence on third parties
- Establish clear contractual agreements
- Implement effective ongoing monitoring processes
2. **Managing Operational and Compliance Implications**
- Maintain a clear understanding of management information systems
- Develop risk-based contingency plans
- Implement robust internal controls
- Ensure compliance with applicable laws and regulations
3. **AML/CFT and Sanctions Compliance**
- Maintain adequate policies, procedures, and controls for AML/CFT requirements
4. **Managing Growth, Liquidity, and Capital Implications**
- Establish appropriate concentration limits and diversification strategies
- Develop liquidity risk management and exit strategies
- Ensure proper classification and reporting of brokered deposits
5. **Addressing Misrepresentations of Deposit Insurance Coverage**
- Establish policies and procedures to ensure compliance with FDIC regulations
- Monitor and evaluate activities of third parties facilitating access to deposit-related services
## Conclusion
As banks increasingly partner with third parties to offer innovative deposit products and services, it's crucial to maintain robust risk management practices. This joint statement serves as a reminder of the potential risks involved and provides guidance on how banks can effectively manage these partnerships while ensuring regulatory compliance and customer protection.
Banks and credit unions should review their current third-party arrangements in light of this guidance and consider implementing or strengthening their risk management practices as needed.
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