The Financial Stability Board (FSB) published for public consultation a toolkit for financial authorities and financial institutions as well as service providers for their third-party risk management and oversight.

The toolkit was developed against a backdrop of digitalisation of the financial services sector and growing reliance of financial institutions on third-party service providers for a range of services, some of which support their critical operations. These dependencies can bring many benefits to financial institutions including flexibility, innovation and improved operational resilience. However, if not properly managed, disruption to critical services or service providers could pose risks to financial institutions and, in some cases, financial stability.

The primary emphasis of the toolkit is on critical services given the potential impact of their disruption on financial institutions’ critical operations and financial stability. In light of changing industry practices and recent regulatory and supervisory approaches to operational resilience, the toolkit takes a holistic view of third-party risk management, which is wider than the historical focus on outsourcing. The principle of proportionality is applicable throughout the toolkit, allowing the tools to be adapted to smaller, less complex institutions or to intra-group third-party service relationships.

The toolkit aims to:

• Reduce fragmentation in regulatory and supervisory approaches to financial institutions’ third-party risk management across jurisdictions and different areas of the financial services sector;
• Strengthen financial institutions’ ability to manage third-party risks and financial authorities’ ability to monitor and strengthen the resilience of the financial system; and
• Facilitate coordination among relevant stakeholders (i.e. financial authorities, financial institutions and third-party service providers).

A copy of the consultation ca be viewed here.