In response to a recent Office of the Comptroller of the Currency request, the American Bankers Association today offered several recommendations for steps third-party service providers should take to support financial sector innovation and increase competition and market transparency.
The OCC late last year issued a request for information on community banks’ engagement with their core service providers and other essential third-party service providers. In its letter, ABA urged the agency to use feedback from the request to modernize its approach to third-party risk supervision and examination of third-party providers. The association also described practices that providers should adopt to support bank innovation rather than impede it.
“We strongly urge the OCC to foster a regulatory environment that supports responsible innovation, including considering new supervisory approaches where existing frameworks are outdated and increasingly ineffective,” ABA said.
As far as innovation, ABA said core service providers should support basic interoperability standards that allow banks to securely export their data and connect with other systems through application programming interfaces, or APIs. The association also said resource constraints of core service providers routinely result in protracted bank project timelines.
ABA said regulatory policies should not discourage community banks from considering a broader range of core providers when evaluating new partnerships. The association said that regulators should prioritize improving transparency regarding core service provider performance, and that they should incorporate into their supervisory framework a review of core providers’ governance for billing accuracy and transparency.
ABA also recommended that the OCC support and participate in the development of consensus-based due diligence standards for third-party service providers and that regulators expand the universe of third-party service providers subject to examination.
