WASHINGTON-The Office of the Comptroller of the Currency (OCC) issued guidance on managing the risks that arise when national banks have business relationships with third parties. The issue has jumped to the forefront after evidence of money laundering and other crimes were committed in financing the terrorist attacks of September 11. “National banks should be extremely cautious before entering into any third-party relationship in which the third party offers products or services through the bank with fees, interest rates, or other terms that cannot be offered by the third party directly,” said Comptroller of the Currency John Hawke. “Such arrangements may constitute an abuse of the national bank charter.” While noting that the legitimacy of third-party relationships, the agency plans to carefully scrutinize arrangements and use its supervisory authority to examine the operations of third parties who act as service providers to national banks which are sought out to deliver potentially abusive, predatory, or unfair and deceptive products. The OCC will likely conduct regular examinations of both the bank and the third party to assess the risks associated with these activities. Reliance on third-party relationships can significantly increase a bank’s risk profile, notably strategic, reputation, compliance, and transaction risks. Increased risk most often arises from poor planning, oversight, and control on the part of the bank and inferior performance or service on the part of the third party. Management and the board must exercise appropriate due diligence prior to entering the third-party relationship and effective oversight and controls afterward. The OCC advises national bank management to adopt a risk management process that includes: * A risk assessment to identify the bank’s needs and requirements; * Proper due diligence to identify and select a third-party provider; * Written contracts that outline duties, obligations, and responsibilities of the parties involved; and * Ongoing oversight of the third parties and third-party activities. Hawke stated that “the value a bank will derive from its use of third-party business relationships is directly proportional to the quality of management’s strategic planning, due diligence and ongoing oversight activities, and sensitivity to customer expectations and understandings with regard to the services and products offered by the third parties.” [email protected]

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