New rules on community banking regulation in the United States: OCC proposes to reduce third-party r

Summary

The Office of the Comptroller of the Currency (OCC) proposes to shift third-party risk management from uniform rules to risk-based management standards. Jonathan Gould, director of the Comptroller of the Currency, said the plan aims to reduce regulatory friction among community banks across the country. The new guidance clarifies how the OCC supervises the use of core service providers by small banks, allowing banks to more flexibly tailor supplier risk management measures based on their size and complexity.

OCC proposal focuses on third-party risk management

This week, the U.S. Office of the Comptroller of the Currency (OCC) proposed new guidance on third-party risk management to reduce compliance pressure on community banks. The agency posted the proposal on its website, positioning it as part of a broader effort to reduce regulatory friction. Under the plan, banks will adjust the intensity of supervision of suppliers based on the actual damage that a particular relationship may cause. The bank's own size, complexity and risk profile will determine the extent to which each supplier relationship is reviewed.

Regulators note that current methods rely on rigid and cumbersome checklists that treat all suppliers equally. This model forces small banks to invest the same resources on low-risk contracts as high-risk contracts. The new guidelines will abandon this uniform standard and adopt risk-based standards instead.

The OCC also elaborated on how it monitors core service providers, companies that provide technology and back-office systems to banks. Many community banks rely on a few such providers for core banking. Regulators said clearer supervisory standards would help banks conduct due diligence and contract negotiations for these suppliers.

Jonathan V. Gould, Director of the Comptroller of the Currency, linked the move to a broader policy agenda. He said the proposal eliminated unnecessary friction while tailoring regulations to address actual risks. Gould added that the changes are aimed at strengthening banks 'ability to manage supplier relationships without adding additional burdens.

Community banks gain more flexibility under new rules

Gould linked the announcement to a statement from the Office of the Comptroller of the Currency that gave credit to President Trump and Treasury Secretary Scott Besant, saying they prioritized community banks. The statement said the two officials believe strong community banks are the key to strengthening the local economy. The framework positions the proposal as part of a larger effort to touch on bank supervision this year.

The OCC said these comprehensive changes provide banks with more room to manage risk while allowing them to offer new products and services. Community banks often serve as major lenders to small businesses and local residents. Vendor supervision costs have been a recurring complaint for small banks, while large competitors often have larger compliance teams to absorb the same burden.

The agency described the proposal as part of an ongoing effort rather than a single solution. It said it had taken a series of actions aimed at adjusting the regulatory burden on community banks. The OCC has not set a specific timetable for the guidance to eventually take effect.

Industry observers are likely to pay close attention to the process of the proposal passing through public comment. In recent years, third-party risk management has come under scrutiny across the banking industry due to several high-profile supplier failures. How the OCC balances flexibility with adequate oversight will shape the final form of the rule.

Lighter third-party rules may make banks more willing to work with cryptocurrency companies. Exchanges and stablecoin issuers often have difficulty finding banking partners due to strict supplier risk assessments. A risk-based approach may allow banks to evaluate crypto relationships based on their actual risk profile, rather than imposing one-size-fits-all restrictions. This shift may alleviate long-standing bottlenecks for cryptocurrencies to enter traditional financial services.