The Texas Independent Banker - May/June 2017 - 13

THE COMPLIANCE GUY

A Good TSP Contract
Says "What?"
KELLY GOULART, CRCM CAMS CIA
IBAT REGULATORY COMPLIANCE MANAGER

Any TSP contract
review should
include the
compliance
officer. That begs
the question:
What guidance
is out there for
compliance
officers to follow?
The answer:
a bunch!

ACCORDING TO A recent article in American
Banker, the FDIC Inspector General is not
thrilled with what they are finding in contracts
between banks (FIs) and third-party technology
service providers (TSPs). In particular, the findings noted that a sizable number of contracts
lacked provisions that "... clearly address TSP
responsibilities and lacked specific contract
provisions to protect FI interests or preserve
FI rights." Have banks simply been ignoring the
numerous regulatory expectations and guidance that have been issued in the last decade?
I know what you're thinking-why is this a
subject for a compliance article? Well, in many
banks, especially smaller ones, the compliance
officer has the responsibility of discerning "all
things" regulatory. And this is an issue for those
smaller banks as well. In fact, several of the
contracts found lacking were from banks under
$250 million. And any TSP contract review
should include the compliance officer. That
begs the question: What guidance is out there
for compliance officers to follow? The answer:
a bunch!
In 2008, the FDIC issued FIL- 44 -2008
Guidance for Managing Third-Party Risk. Both
the FFIEC and the CFPB issued separate guidance in 2012 on managing third-party service
vendors. Not to be outdone, the OCC and the
Federal Reserve issued similar guidance in
2013. In 2016, the OCC issued a white paper
entitled Supporting Responsible Innovation in
the Federal Banking System: An OCC Perspective
which has quickly become the "go to" resource
for what all the bank regulatory agencies are
looking for in a bank's significant third-party
contracts. So there certainly is no lack of guidance out there.
I asked Karen Neeley, IBAT general counsel
and senior attorney with Kennedy Sutherland
LLP, to give me a few bullet points on what she
looks for in a TSP contract using the FDIC's
Contract Structuring and Review as a framework. Below are some of the contract structural
issues the FDIC identified along with the bullet
points on specifics to look for from Karen.

1

2

3

4

5

Timeframe covered by the contract
* the specific term
* a clause on termination and notice
* a change in control as trigger event
* an early termination penalty
* an auto-renewal clause
Frequency, format and specifications of the
service or product to be provided
* the vendor's obligations
* the bank's obligations
* warranties
* disclaimers of warranties
* exclusivity
* amendments-e.g., can they be unilateral
by the vendor?
Other services to be provided by the third party,
such as software support and maintenance,
training of employees, and customer service
* marketing support
* processor interface
* software updates / enhancements
* cost issues include travel and expense rates
Requirement that the third party comply with
all applicable laws, regulations, and regulatory
guidance
* GLBA confidentiality
* identity theft "red flags" if applicable
* HIPAA if health information will be
transmitted
Authorization for the institution and the appropriate federal and state regulatory agency
to have access to records of the third party
as are necessary or appropriate to evaluate
compliance with laws, rules, and regulations

6

Business continuity plan or complete summary (must be provided and be acceptable)

7

Identification of which party will be responsible for delivering any required customer
disclosures
* data security breach notification obligation
Insurance coverage to be maintained by the
third party
* indemnity clause
* limitations on liability

8

May/June 2017

www.ibat.org

13


http://www.ibat.org

Table of Contents for the Digital Edition of The Texas Independent Banker - May/June 2017

Up Front CHRISTOPHER L. WILLISTON, CAE
General Counsel’s Corner KAREN M. NEELEY
Services Spotlight JOE KIM KING
The Compliance Guy KELLY GOULART, CRCM CAMS CIA
News
Leadership Conference Preview
Gap Management: An Idea Whose Time Has Gone LESTER MURRAY
IBAT 2017 Regional Meeting Tour CHRISTOPHER L. WILLISTON VI, CAE
In an Uncertain World, Look for the Silver Lining MARK ROE
Farewell from Mae Beth
People
Calendars
New Members
Index of Advertisers
Communities
The Texas Independent Banker - May/June 2017 - cover1
The Texas Independent Banker - May/June 2017 - cover2
The Texas Independent Banker - May/June 2017 - 3
The Texas Independent Banker - May/June 2017 - 4
The Texas Independent Banker - May/June 2017 - 5
The Texas Independent Banker - May/June 2017 - Up Front CHRISTOPHER L. WILLISTON, CAE
The Texas Independent Banker - May/June 2017 - 7
The Texas Independent Banker - May/June 2017 - General Counsel’s Corner KAREN M. NEELEY
The Texas Independent Banker - May/June 2017 - 9
The Texas Independent Banker - May/June 2017 - Services Spotlight JOE KIM KING
The Texas Independent Banker - May/June 2017 - 11
The Texas Independent Banker - May/June 2017 - 12
The Texas Independent Banker - May/June 2017 - The Compliance Guy KELLY GOULART, CRCM CAMS CIA
The Texas Independent Banker - May/June 2017 - 14
The Texas Independent Banker - May/June 2017 - News
The Texas Independent Banker - May/June 2017 - Leadership Conference Preview
The Texas Independent Banker - May/June 2017 - 17
The Texas Independent Banker - May/June 2017 - 18
The Texas Independent Banker - May/June 2017 - Gap Management: An Idea Whose Time Has Gone LESTER MURRAY
The Texas Independent Banker - May/June 2017 - 20
The Texas Independent Banker - May/June 2017 - 21
The Texas Independent Banker - May/June 2017 - IBAT 2017 Regional Meeting Tour CHRISTOPHER L. WILLISTON VI, CAE
The Texas Independent Banker - May/June 2017 - 23
The Texas Independent Banker - May/June 2017 - 24
The Texas Independent Banker - May/June 2017 - 25
The Texas Independent Banker - May/June 2017 - In an Uncertain World, Look for the Silver Lining MARK ROE
The Texas Independent Banker - May/June 2017 - 27
The Texas Independent Banker - May/June 2017 - 28
The Texas Independent Banker - May/June 2017 - Farewell from Mae Beth
The Texas Independent Banker - May/June 2017 - People
The Texas Independent Banker - May/June 2017 - 31
The Texas Independent Banker - May/June 2017 - Calendars
The Texas Independent Banker - May/June 2017 - Index of Advertisers
The Texas Independent Banker - May/June 2017 - Communities
The Texas Independent Banker - May/June 2017 - cover3
The Texas Independent Banker - May/June 2017 - cover4
The Texas Independent Banker - May/June 2017 - 37
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