CSBS Issue Briefings - August 2020

Bank Service Company Examination Coordination Act

CSBS Official Public Position

CSBS strongly supports H.R. 241/S. 4154, the Bank Service Company Examination Coordination Act, which would enhance state and federal regulators’ ability to coordinate examinations of and share information on banks’ technology vendors in an effective and e fficient manner.

Summary

Banks have long partnered with technology service providers (TSPs), which can be bank affiliates or subsidiaries or third-party vendors, to outsource a range of critical business services, including hardware management, software development, cybersecurity, payments systems and call centers. TSPs are expected to comply with the same applicable laws and regulations as the bank using their services. Increasingly, banks of all sizes are seeking to leverage technological innovations, such as partnering with fintechs or migrating to the Cloud, for a variety of back office and customer-facing services. State regulators seek to support the work of banks with TSPs in a manner that is consistent with safety and soundness and consumer protection requirements. Ensuring effective regulatory oversight of banks’ partners and vendors is important to accomplishing this goal. The Bank Service Company Act (BSCA) authorizes federal regulators to examine TSPs but is silent about the authority and role of state regulators. However, many states have laws giving state bank regulators authority to examine TSPs. The Bank Service Company Examination Coordination Act (H.R 241/S. 4154) would amend the BSCA to permit federal and state banking agencies to coordinate examinations of TSPs and share results. While the BSCA does not bar state regulators from participating in exams with federal regulators, its failure to include state regulators has been interpreted as a barrier to information sharing and regulatory coordination, even when those TSPs provide core services to state-chartered banks. Limitations on coordination between state and federal regulators potentially result in duplicative and less efficient supervision. • H.R. 241/S. 4154 is common-sense legislation that makes state and federal supervision more efficient and more effective. • Oversight of the businesses providing state-chartered banks with critical services is key to ensuring a safe and productive financial system. • This legislation helps regulatory agencies better safeguard individual institutions, the banking system and consumers. • Improved TSP information sharing and coordinated TSP supervision increases the likelihood of regulators revealing risks and weaknesses in individual institutions and in the greater financial system. • The 2017 Annual Report of the Financial Stability Oversight Council recommends legislation for coordinated TSP examinations. Talking Points Why it Matters to State Regulators

FOR STATE REGULATOR USE ONLY