The Financial Stability Board (FSB), an international body that monitors and makes recommendations about the global financial system, has released a new resource for third-party risk management and regulation in the financial sector.
‘Enhancing Third-Party Risk Management and Oversight: A toolkit for financial institutions and financial authorities’ was developed in response to concerns over the extent and nature of financial institutions’ interactions with a broad and diverse ecosystem of third-party service providers, which could have implications for financial stability.
The primary emphasis of the toolkit is on critical third-party services, given the potential impact of their disruption on financial institutions’ critical operations and financial stability. It also looks holistically at financial institutions’ third-party risk management in light of changing industry practices and recent regulatory and supervisory approaches to operational resilience.
The toolkit includes:
- A list of common terms and definitions to improve clarity and consistency regarding third-party risk management across financial institutions.
- Tools to help financial institutions identify critical services and manage potential risks throughout the lifecycle of a third-party service relationship.
- Tools for supervising how financial institutions manage third-party risks, and for identifying, monitoring, and managing systemic third-party dependencies and potential systemic risks.
The FSB has also set out ways to explore greater convergence of regulatory and supervisory frameworks around systemic third-party dependencies; options for greater cross-border information-sharing; and cross-border resilience testing and exercises.