FSB Toolkit important step to developing effective third-party risk management system comes on the heels of recently released Interagency Guidance on Third-Party Relationships by US financial regulators

AFC looks forward to collaborating with FSB to expand its scope to consider true bank-fintech partnerships and banking-as-a-service models as well as cross border regulatory collaboration

Washington, D.C. (July 6, 2023) – The American Fintech Council (AFC), the premier industry association representing responsible fintech companies who deliver critical access to safe and affordable financial services, applauds the Financial Stability Board (FSB) for their focus and attention on third party risk management. The FSB recently released a toolkit for financial institutions and financial authorities that includes broad and important recommendations that can provide important clarity for industry and regulators and create a safer financial services ecosystem for consumers.

“This toolkit provides a number of recommendations that, if implemented globally, would ensure that financial institutions provide important services to consumers and ensure that they are protected throughout the process,” said Phil Goldfeder, Chief Executive Officer at the American Fintech Council. “I want to applaud the Financial Stability Board for developing a truly beneficial toolkit for financial institutions engaging in third-party relationships.”

“In recent years, the extent and nature of financial institutions’ interactions with a broad and diverse ecosystem of third-party service providers have evolved and increased,” the FSB noted in their report. “These developments have brought both benefits and the introduction of different types of risks to financial institutions. If they are not appropriately managed, these relationships could lead to risks to financial stability.”

The report identifies three objectives of the toolkit that include: reducing fragmentation in regulatory and supervisory approaches to financial institutions’ third-party risk management across jurisdictions and different areas of the financial services sector, strengthen financial institutions’ ability to manage third-party risks and financial authorities’ ability to monitor and strengthen the resilience of the financial system; and finally, facilitate coordination among relevant stakeholders.

While the report offered important recommendations lauded by AFC, the FSB limited the toolkit’s application to traditional IT-related third parties but did not include lending and many third-party payments relationships.

“In order to have the most effective third-party risk management, both industry and regulators must move beyond the traditional understanding of third-party service towards a new understanding that includes core banking functions, such as lending and payments partnerships,” concluded Goldfeder. “We look forward to engaging with the FSB further on this issue to ensure that the scope of their guidance reflects the innovative business models in the modern banking system."

The American Fintech Council will take advantage of the opportunity provided by the FSB to provide comments on the consultative document.