Before entering into a third-party relationship, banks should develop plans that articulate the strategic purpose and assess the complexity and risks involved.

• Strategic Alignment: Ensure the relationship aligns with the bank's strategic goals and objectives.
• Risk Assessment: Identify and assess the inherent risks associated with the activity, including operational, compliance, strategic, and reputation risks.
• Resource Analysis: Evaluate the bank's capacity to manage the relationship and the associated risks.
• Cost-Benefit Analysis: Conduct a thorough analysis comparing the benefits versus the costs and risks.

Banks must conduct comprehensive due diligence to assess the third party's ability to perform the activity reliably, securely, and in compliance with laws and regulations.

• Scope and Depth: Due diligence should be commensurate with the level of risk and complexity of the relationship.
• Key Areas: Evaluate the third party's financial condition, business experience, reputation, legal/regulatory compliance, operational controls, information security posture, and business continuity/resilience.
• Subcontractor Review: Assess the third party's ability to manage its own subcontractors (fourth parties).
• Independent Reviews: Consider independent reviews or certifications (e.g., SOC reports).

Contracts should clearly define the rights and responsibilities of each party, address risks, and comply with legal and regulatory requirements.

• Clear Expectations: Define scope, service levels, performance standards, and responsibilities.
• Risk Allocation: Address security, data ownership, confidentiality, and liability.
• Right to Audit: Include provisions for the bank and regulators to access records and conduct audits.
• Business Continuity: Specify requirements for the third party's business continuity and contingency plans.
• Default & Termination: Outline conditions for default and termination, including data return/destruction provisions.

Banks must implement a continuous monitoring process to verify the third party's performance, compliance, and risk profile throughout the relationship.

• Performance Review: Monitor adherence to SLAs and performance metrics.
• Risk Reassessment: Periodically reassess risks based on performance, control testing, and changes in the environment.
• Financial Condition: Monitor the third party's financial stability.
• Compliance Verification: Ensure ongoing compliance with laws, regulations, and contractual terms.
• Incident Response: Review the third party's handling of security incidents or service disruptions.

Banks should have strategies for terminating relationships in an orderly manner, whether planned or unexpected.

• Exit Strategy: Develop and maintain exit strategies, considering transition complexity and potential impacts.
• Data Management: Ensure secure return or destruction of bank data and records.
• Contingency Planning: Have plans for transitioning services to an alternative provider or bringing them in-house.
• Contractual Provisions: Ensure termination rights and processes are clearly defined in the contract.