Embracing Escrow: OCC, FDIC, and FED Board releases revised third-party risk management guidelines for US Banks

In June this year, the Office of the Comptroller of the Currency (OCC), Federal Deposit Insurance Corporation (FDIC), and Federal Reserve Board (FED) shared a joint statement offering guidance focused on outsourcing and third-party risk management for banking institutions.

These guidelines replace the FED's 2013 guidance, the FDIC's 2008 guidance, and the OCC's 2013 guidance as well as its 2020 frequently asked questions. Its scope is wide ranging, applying to all National Banks & Federal Branches and Agencies, Trust Banks, Federal Savings Associations and also includes Banking as a Service providers.

The guidance offers the views of the OCC, FDIC, and FED on sound risk management principles for banking. It provides a framework for organizations when developing and implementing risk management practices for all stages in the life cycle of third-party relationships, naming Escrow solutions as an important provision to consider.

The new guidance demonstrates a continued drive towards operational resilience amongst financial services providers, and it will apply to all banking institutions within the United States supervised by these agencies.

John Boruvka, Vice President, US Sales at NCC Group, shared: "These guidelines demand accountability, transparency, and resilience, and it's exactly what the industry needs. The interagency guidance emphasises the importance of sound risk management principles and provides a consistent framework for institutions to enforce better management practices.

"We are pleased to see the agencies adopt our recommendation to include guidance on practical resilience solutions like Escrow. Its inclusion in third party risk management will be particularly impactful. Escrow agreements are no longer an afterthought for these institutions; they're front and centre throughout the risk management process.

"The guidelines represent a significant step towards accountability and resilience in the financial services sector, especially with general trends showing the increase in the number and type of banking organizations' third-party relationships. By embracing the principles outlined and incorporating Escrow provisions, banks can enhance their risk management practices and ensure the smooth continuity of their operations."