EVALUATING THIRD PARTY RELATIONSHIPS OVERVIEW BENEFITS Gain - PowerPoint PPT Presentation

EVALUATING THIRD PARTY RELATIONSHIPS

OVERVIEW

BENEFITS ¡ Gain expertise ¡ Gain efficiencies ¡ Reach new members ¡ Provide more products and services

RISKS ¡ Reputation Risk ¡ Operational Risk ¡ Transaction Risk ¡ Credit Risk ¡ Compliance Risk

WHO REQUIRES OVERSIGHT? ¡ All Third Parties ¡ Board and Senior Management responsible for oversight ¡ Vendors=division of the credit union

COMMON TYPES OF VENDOR RELATIONSHIPS ¡ Compliance ¡ Products ¡ Loan Servicing ¡ Doc Prep ¡ Technology

RISK MANAGEMENT ¡ Riskier arrangements = more planning and due diligence ¡ Smaller credit unions = less complex arrangements ¡ Long experience can mitigate risk ¡ Documentation!!

SUMMARY OF THIRD PARTY RELATIONSHIP MANAGEMENT ¡ Planning and Risk Assessment ¡ Due Diligence ¡ Ongoing Monitoring ¡ Documentation

PLANNING AND RISK ASSESSMENT

INTRODUCTION Before entering into a third party relationship, officials should: ¡ Determine whether the relationship complements their credit union’s overall mission and philosophy. ¡ Document how the relationship will relate to their credit union’s strategic plan. ¡ Design action plans to achieve short-term and long-term objectives in support of strategic planning for new third party arrangements. ¡ Assign authority and responsibility for new third party arrangements. ¡ Weigh the risks and benefits of outsourcing business functions with the risks and benefits of maintaining those functions in- house.

INITIAL RISK ASSESSMENT ¡ Seven Risk Areas ¡ Expectations of Outsourced Functions ¡ Criticality ¡ Risk/Reward ¡ Insurance ¡ Membership Impact ¡ Exit Strategy

FINANCIAL PROJECTIONS ¡ Develop financial projections outlining the range of expected and possible financial outcomes ¡ Project a return on investment

VENDOR MANAGEMENT POLICY ¡ Procedures for analyzing, selecting and administering third party relationships ¡ Staff responsibilities ¡ Authorization to sign contracts

POTENTIAL RISKS ¡ Strategic ¡ Reputation ¡ Operational ¡ Transaction ¡ Credit ¡ Compliance ¡ Interest Rate ¡ Liquidity

MONITORING

INTRODUCTION ¡ Establish ongoing expectations and limitations ¡ Compare program performance to expectations ¡ Ensure all parties are fulfilling their responsibilities

POLICIES AND PROCEDURES ¡ Staff responsibilities ¡ Content and frequency of reporting ¡ Program limitations

MONITORING ¡ Control systems based on risk ¡ Sufficient to ensure safety and soundness

REPORTING Credit union officials should receive periodic reports regarding third party arrangements