ALLL Regulations / Vendor Due Diligence

Vendor Due Diligence

Regulatory bodies expect financial institutions to practice effective risk management regardless of whether they perform the activity internally or through a third party, and this includes vendor due diligence. According to the Bulletin of the OCC, an effective, third-party risk management process follows a continuous life cycle for all contractual relationships and incorporates the following phases:

Planning
Due diligence and Third-Party Selection
Contract Negotiation
Ongoing Monitoring
Expiration/Termination

As institutions consider an allowance solution to use for the expected loss model, there may be other criteria to consider, including readiness, responsiveness and flexibility with the third party.

Vendor Due Diligence

CECL
CECL Software Considerations
Although many institutions have already discovered the value of a dedicated software platform to accomplish their current ALLL processes, nearly all institutions would agree that modernizing their approach has material benefits. The following recommendations are not intended to replace regulatory guidance as it relates to vendor management. Rather, the intent is to provide an understanding of a CECL-ready solution and the critical elements that such a solution should contain for tactical due diligence.

Documentation
Vendor Due Diligence
Regulatory bodies expect financial institutions to practice effective risk management regardless of whether they perform the activity internally or through a third party. According to the Bulletin of the OCC, an effective, third-party risk management process follows a continuous life cycle for all contractual relationships and incorporates the following phases