Banking and Finance Law Daily FDIC guides financial institutions on technology service provider contracts, notification
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Wednesday, April 3, 2019

FDIC guides financial institutions on technology service provider contracts, notification

By Charles A. Menke, J.D.

The FDIC has issued a Financial Institutions Letter advising supervised institutions of their requirements under the Bank Service Company Act to notify federal regulators of contracts with technology service providers.

The Federal Deposit Insurance Corporation has notified financial institutions it supervises of examiner observations relating to gaps in financial institutions’ contracts with technology service providers that may require the institutions to take additional steps to manage their own business continuity and incident response (FIL-19-2019). According to recent FDIC examination findings, some financial institution contracts with technology service providers lack sufficient detail regarding the contract parties’ respective rights and responsibilities. The FDIC cautioned that when contracts fail to adequately address certain risks, financial institutions remain responsible for assessing those risks and implementing appropriate mitigating controls.

The FDIC further advised that section 7 of the Bank Service Company Act (12 USC §1867) requires depository institutions to provide written notification to their respective federal regulator of contracts or relationships with technology service providers that provide specified services. The services covered under the Act include check and deposit sorting and posting, computation and posting of interest, preparation and mailing of checks or statements, and other clerical, bookkeeping, accounting, statistical, or similar functions such as data processing, Internet banking, or mobile banking services.

The FDIC has developed a form to assist institutions in complying with the Act’s notification requirements. The form is optional, and the information requested on the form may be submitted to the FDIC in any format. Notifications should be sent to the institution’s FDIC regional office.

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