Compliance Question of the Week
October 29, 2013
Oct. 29, 2013
Our credit union would like to contract with a third party for services. What do we need
NCUA’s Letter to Federal Credit Unions (07-CU-13) lays out a number of factors that credit unions should consider before entering into a third party relationship. According to NCUA, credit unions should consider the following:
- Will the third-party relationship compliment the credit union’s overall mission and philosophy?
- How critical is the activity being outsourced?
- How will the third-party relationship impact (if at all) the credit union’s strategic plans (long-term goals, objectives and resource allocation)?
- How will the risks/benefits of outsourcing the particular function compare with keeping the function in house?
- How will the third-party relationship impact (if at all) seven risk areas: credit, interest rate, liquidity, transaction, compliance, strategic, and reputation risk?
- Does the credit union staff have the expertise to manage and monitor a third-party relationship?
- Will the third-party relationship create additional insurance responsibilities for the credit union?
- How will the relationship impact the credit union’s membership (positive and negative)?
- Does the credit union have an effective exit strategy?
The guidance highlights the need for credit unions to perform extensive due diligence and review the risks/benefits of outsourcing member services prior to engaging in a third-party vendor relationship.
Questions? Contact the Compliance Hotline: 1.800.546.4465, firstname.lastname@example.org.