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Best Practices

ALTA Best Practices Can Help Lenders Meet OCC Risk-management Guidance

November 7, 2013

The Office of the Comptroller of the Currency (OCC) issued updated guidance to national banks and federal savings associations for assessing and managing risks associated with third-party relationships.

Banks are expected to practice effective risk management regardless of whether the bank performs the activity internally or through a third party, according to the guidance.

“A bank’s use of third parties does not diminish its responsibility to ensure that the activity is performed in a safe and sound manner and in compliance with applicable laws,” the OCC guidance said.

To help lending institutions supplement their risk-management programs, ALTA developed its "Title Insurance and Settlement Company Best Practices” framework. The Best Practices highlight policies and procedures the industry uses to help ensure a positive and compliant real estate settlement experience.

“Today’s risk-management guidance released by the OCC is another example of the value of the ALTA Best Practices framework for lenders trying to manage risk related to third-party relationships,” said Michelle Korsmo, ALTA’s chief operating officer. “As our lender clients work to develop their own risk management systems, the land title industry continues to lead by example. The Best Practices framework will continue to be a responsive product to meet market needs.”

ALTA’s Best Practices framework includes guidance on seven pillars, Assessment Procedures, Certification Package, Assessment Workbook and Policy and Procedure Creation Guidance.

The Assessment Procedures can be used by title professionals to help lenders decide if a third-party service provider meets different pillars of the Best Practices. A Certification Package also is available and can be used by title professionals to warrant and attest to lenders that they have implemented ALTA’s Best Practices.

The OCC reported that banks continue to increase the number and complexity of relationships with both foreign and domestic third parties, such as:

  • outsourcing entire bank functions to third parties, such as tax, legal, audit or information technology operations.
  • outsourcing lines of business or products.
  • relying on a single third party to perform multiple activities, often to such an extent that the third party becomes an integral component of the bank’s operations.
  • working with third parties that engage directly with customers.
  • contracting with third parties that subcontract activities to other foreign and domestic providers.
  • contracting with third parties whose employees, facilities and subcontractors may be geographically concentrated.
  • working with a third party to address deficiencies in bank operations or compliance with laws or regulations.
The OCC is concerned that the quality of risk management over third-party relationships may not be keeping pace with the level of risk and complexity of these relationships. The OCC has identified instances in which bank management has:
  • failed to properly assess and understand the risks and direct and indirect costs involved in third-party relationships.
  • failed to perform adequate due diligence and ongoing monitoring of third-party relationships.
  • entered into contracts without assessing the adequacy of a third party’s risk management practices.
  • entered into contracts that incentivize a third party to take risks that are detrimental to the bank or its customers, in order to maximize the third party’s revenues.
  • engaged in informal third-party relationships without contracts in place.



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