Various financial industry segments are increasingly using third-party Fintech vendors to expand services and increase their innovative offerings in specialized ways. While this trend has now been in place for years, it has risen substantially over the last year in particular due to COVID-19 pandemic, which facilitated a reliance on essentially all forms of financial technologies. This has resulted in a new norm in the financial industry where a single institution can have dozens of vendors (or more), resulting in a situation that can become complex for organizations that are relatively new to managing such a network of specific and often niche relationships.
With this expedited embrace of vendors, it is crucial to restate the need for adherence to vendor regulations. These regulations will depend on various factors. One factor is the relevant regulating entity, such as the Federal Reserve, the FDIC, or whichever regulator applied to your organization.
It’s essential to keep up to date with current regulations, especially after governmental changes take places. Broadly speaking, however, regulators will look to verify that your organization is taking the appropriate steps to minimized and mitigate risk as vendors go about providing services on behalf of your organization, especially when they do so directly with customers and clients.
Other layers to consider are not only federal laws but also state laws. This comes into play in a more pronounced way for active organizations in more than one state and across several different regions of the United States that may have widely varying requirements. Regardless of the scale and scope of operations, it is always advisable to bring on regulation consultants and specialists who are up to date on the most recent industry-specific regulations across the federal and state level, and experience in dealing directly with regulating bodies. Having an organized system of record-keeping for transactions and internal communications with vendors is also helpful in ensuring the best adherence when working with capable advisors to protect your business and provide best practices in the post-pandemic economic landscape.
