FSB toolkit an important step to developing effective third-party risk managementfor financial institutions and financial authorities and can provide important clarity for industry and regulators to create a safer financial services ecosystem for consumers

This toolkit comes on the heels of recently released Interagency Guidance on Third-Party Risk Management (TPRM) by US financial regulators and the creation of the Novel Activities Supervision Program by the Federal Reserve

Washington, D.C. (August 24, 2023) – The American Fintech Council (AFC), the premier industry association representing responsible fintech companies and innovative banks who deliver critical access to safe and affordable financial services, urged the Financial Stability Board (FSB) to expand the scope of its third-party risk management toolkit. The FSB recently released a toolkit for financial institutions and financial authorities that includes broad and important recommendations that can provide important clarity for both industry and regulators and create a safer financial services ecosystem for consumers.

“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 and Banking-as-a-Service,” said Phil Goldfeder, CEO of the AFC. “We thank the FSB for the opportunity to collaborate and look forward to our continued partnership to ensure the scope of their guidance reflects the safe and innovative business models in the modern banking system.”

In their recent letter, AFC urged FSB to consider expanding the scope of the toolkit to include core banking functions and to increase coordination with US banking regulators. 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 and Banking-as-a Service models. AFC also noted that as bank-fintech partnerships expand, it is critical for financial institutions to work under a unified set of federal regulatory guidance that creates the appropriate and modernized best practices standards.

“In the United States, the recently published final interagency TPRM guidance and other increased regulatory attention to third-party relationships…demonstrates the demand for federal leadership and clarity,” wrote AFC in their letter. “AFC recommends that as FSB finalizes the Toolkit and any possible related guidance/rulemakings that it coordinates with US financial services regulatory agencies to ensure that rules and requirements addressing third-party risk fit within the FSB’s global approach and are not duplicative or contradictory to the work conducted by other regulators.”

“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.”‍

Read the full letter here