2024 OCC Bank Supervision Operating Plan: Third-Party Focus Areas and Next Steps

October marks the beginning of fiscal year 2024 for the federal government, and the Office of the Comptroller of the Currency (OCC) has released their annual Bank Supervision Operating Plan. Organizations that are regulated by the OCC should review next year’s priorities and objectives to learn more about potential exam areas. Doing so may help identify any areas of improvement within your organization.

Third-Party Focus Areas from the OCC Bank Supervision Operating Plan

In total, the OCC outlines 13 focus areas, ranging from asset and liability management to climate-related financial risks. Four of these areas include specific references to third parties, which we’ve extracted below and noted in italicized text.

• Cybersecurity: Examiners should consider the effectiveness of banks’ third-party risk management, including their validation of third-party controls and data protections, such as access management, network management, and data management.
• Operations: Examiners should identify and assess products, services, and third-party relationships with unique, innovative, or complex structures, such as real-time payments, banking-as-a-service arrangements, distributed ledger-related activities, or use of artificial intelligence technologies. Examiners should determine whether banks’ due diligence, ongoing monitoring processes, and risk governance are commensurate with the nature and criticality of new, modified, or expanded products and services.
• Change management: Examiners should identify banks that are implementing significant changes in their leadership, operations, risk management frameworks, and business activities, including the use of third-party service providers that support critical activities.
• Consumer compliance: Examiners should also evaluate the effectiveness of compliance functions supported by third-party service providers. Additionally, examiners should evaluate the due diligence performed on any prospective third-party relationships relative to the specific roles and responsibilities of the bank and the third party.

Considerations for Your Third-Party Risk Management Program

The following are suggestions on next steps to consider within your own third-party risk management (TPRM) program:

1. Collaborate with a qualified subject matter expert (SME) to review your processes for validating your vendors’ controls. The SME should help determine whether your processes are effective.
2. Ensure that your organization has a consistent, repeatable process for defining its critical vendors. Regulators expect a higher level of due diligence and more frequent ongoing monitoring for vendors that are deemed critical to your organization.
3. Have a strong change management process in place when implementing significant changes to avoid creating or worsening risks. Significant changes should be well planned, well communicated, and well executed. This is especially vital when introducing high-risk products or services, or when adding, replacing, or exiting critical vendors.
4. Identify the third-party vendors that expose you to compliance risk and ensure you have processes in place for preventing unfair, deceptive, or abusive acts or practices (UDAAP) violations. Also, consider reevaluating your initial due diligence processes to verify that you’re properly addressing compliance risk with new vendors.

The OCC’s Bank Supervision Operating Plan, as well as the Interagency Guidance on Third-Party Relationships, should serve as an important reminder that regulators are increasing their focus on third-party risk management. Developing and maintaining a proper TPRM program will not only satisfy regulators, but it will also create a safer environment for your vendor relationships.