OCC Stresses Importance of ERM in Vendor Risk Management

Steven Minsky | Nov. 7, 2013

On October 30, 2013 the Office of the Comptroller of the Currency (OCC) published a bulletin to the CEOs and CROs of all national banks stressing the need for an enterprise risk management approach to vendor risk management. In the bulletin, entitled, OCC: Third-Party Relationships: Risk Management Guidance, the office recognizes, “integrating the bank’s third-party risk management process with its enterprise risk management framework enables continuous oversight and accountability.”

How does the OCC expect risk managers to accomplish this integration? The bulletin emphasizes a risk based approach to all third-party relationships that involve critical activities. In fact, the bulletin mentions the phrase “critical activities” over 25 times throughout the 10 page briefing. A quick scan through of this phraseology reveals the expectation of in-depth enterprise risk management for banks.

For starters, the bulletin calls for a variety of assessments: process assessments to determine critical activities; vendor assessments for due diligence; and control testing and monitoring to manage risks from third-party vendors. Each of these assessment types will require a defined and well-articulated criteria so that they are uniform throughout your organization, enabling executives to determine priorities and set objectives.

Additionally, a relational or taxonomy-enabled approach will allow your bank to report on how third-party relationships relate to your critical activities, such as bank function (payments, clearing, etc.), shared service (information technology), or strategic imperative (reputation, cash flow predictability). Tracking these relationships in spreadsheets or on homegrown systems can be laborious and complex, and a vendor risk management software in an integrated ERM platform can greatly streamline governance activities.

While the notice is tailored to national banks, it includes a note for community banks to “adopt risk management practices commensurate with their level of risk.” The risk universe in a community bank is much different than for large, national institutions; however, that’s not to say the methodologies will change. A community bank can use enterprise risk management to set priorities in its vendor risk management process, and shave hours off due diligence and compliance activities.

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2018-01-31T16:42:21+00:00

About the Author:

Steven is a recognized thought leader in ERM, CEO of LogicManager, and co-author of the RIMS Risk Maturity Model. Follow him on Twitter at @SteveMinsky