FSB Flags Third-Party Risk in New Consultation Paper

The Financial Stability Board today issued a paper on outsourcing and third-party risk management. The document—which is intended to “help facilitate a discussion on current regulatory and supervisory approaches to the management of outsourcing and third-party risks”—draws on a recent survey of FSB member jurisdictions. The FSB will accept public comments on the paper until Jan. 8.

The paper highlights several issues and challenges related to third party risk management, including the need for banks to ensure that they and their regulators have rights to access, audit and obtain information from third parties—something that FSB noted “can be challenging to negotiate or exercise, particularly in a multi-jurisdictional context.”

The paper also addresses the potential for systemic risk that could arise if a large number of financial institutions became dependent on one or a small number of outsourced or third-party service providers. “A major disruption, outage or failure at one of these third parties could create a single point of failure with potential adverse consequences for financial stability and/or the safety and soundness of multiple FIs,” FSB noted.