The Federal Reserve’s outsourcing risk management guidance may need to be changed to help community banks interact with fintech firms, one of the central bank’s senior officials says.
Speaking on April 11, Michelle Bowman, a governor on the Fed Board, said guidance needed to “appropriately reflect the present-day business realities” of banks the Fed supervises.
“Regulators’ third-party risk management frameworks discuss particular types of contractual terms and, where appropriate, audit rights by a bank over its service providers,” she explained.
However, when community banks negotiate with big tech firms, such as Google or Amazon, or a third-party service provider, they may not have much leverage.
“As the largest vendors grow even larger, this will get even harder for small banks,” she said, emphasising there may be a need for the Fed to re-evaluate the guidance it currently has in place.
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