Let’s improve state and federal regulation of bank vendors

John Ryan

Recently the House recently unanimously approved legislation that would enhance the ability of state and federal regulators to coordinate the examinations of a bank’s technology vendor. I urge the Senate to do the same.

The Bank Service Company Examination Coordination Act, H.R. 241, would update an existing law so that regulators can effectively and efficiently examine third-party service providers (TSPs).

That law, the Bank Service Company Act, authorizes federal regulators to examine TSPs to assess any potential risks they pose to individual client banks and the broader banking system.

Many state banking regulators are authorized under state law to examine TSPs and are responsible for ensuring these relationships do not pose undue risks to the state-chartered banking system, which accounts for 79 percent of the nation’s banks. However, the Bank Service Company Act is silent regarding state bank regulators. That limits the ability of federal regulators to share information with state regulators and often results in duplicative and inefficient examinations.

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