ICBA shares feedback on core providers with OCC

ICBA shared input on community banks’ relationships with core service providers and other essential third-party service providers to help identify pragmatic actions to reduce the burden on community banks.

Details: In a letter responding to the OCC’s request for information on community banks’ engagement with core service providers and third-party services providers, ICBA said its recommendations are designed to reduce duplicative supervisory burden, improve access to meaningful information, and foster a more competitive and interoperable technology marketplace.

Highlights: In the letter ICBA says:

• Community banks face growing challenges in modernizing technology and remaining competitive due to legacy core system limitations, high integration and conversion costs, vendor concentration, and uncertainty in supervisory expectations, rather than a lack of willingness or capacity to innovate.

• Principles-based third-party risk management guidance is generally appropriate, but inconsistent or overly prescriptive application can create unnecessary burden, discourage responsible innovation, and reinforce reliance on legacy service providers.

• Community banks would benefit from greater regulatory clarity through timely interpretive tools such as frequently asked questions, supervisory highlights, and no-action letters, rather than new prescriptive regulations, particularly for emerging technologies and evolving payment environments.

• Facilitating shared due diligence, improving access to relevant supervisory information about service providers, and ensuring more consistent oversight could significantly reduce duplication, lower compliance costs, and improve community banks’ ability to negotiate and manage third-party relationships.

• Targeted tools such as limited-scope regulatory sandboxes, stronger interagency coordination, and structured dialogue among regulators, community banks, and service providers can support responsible innovation while maintaining appropriate safeguards for safety and soundness.

Background: As part of an announcement regarding efforts to reduce community bank Bank Secrecy Act and anti-money laundering burdens, the OCC in November issued an RFI to better understand the challenges community banks face with core service providers and other essential third-party service providers.