On April 2, the FDIC issued Financial Institution Letter FIL-19-2019 (Technology Service Provider Contracts), which describes examiner observations about gaps in financial institutions’ contracts with technology service providers (TSPs) that may require financial institutions to take additional steps to manage business continuity and incident response. Although not specifically referenced in FIL-19-2019, this latest FDIC guidance echoes themes set forth in the FDIC’s Office of Inspector General (OIG) Audit Report released in 2017 (covered in Infobytes here). Specifically, examiners noted contractual deficiencies in recent reports of examination, including failing to: (i) adequately define rights and responsibilities regarding business continuity and incident response, or provide sufficient detail to allow financial institutions to manage those processes and risks; (ii) consistently require TSPs to maintain a business continuity plan, establish data recovery standards, and commit to contractual remedies if the TSP missed a data recovery standard; (iii) sufficiently detail the TSP’s security incident responsibilities such as notifying the financial institution, regulators, or law enforcement; and (iv) clearly define key terms used in contractual provisions relating to business continuity and incident response.

FIL-19-2019 further stresses that supervised institutions are required to comply with the Interagency Guidelines Establishing Information Security Standards promulgated pursuant to the GLBA, which among other things sets forth expectations for managing TSP relationships through contractual terms and ongoing monitoring. The FDIC references prior guidance establishing regulatory expectations, including: (i) Guidance for Managing Third-Party Risk (FIL-44-2008, issued June 6, 2008); and (ii) the Business Continuity Booklet set forth in the FFIEC IT Examination Handbook, which was updated in February 2015 to include a new appendix specific to managing service provider risks (Appendix J: Strengthening the Resilience of Outsourced Technology Services). FIL-19-2019 also contains a reminder to depository institutions that the Bank Service Company Act requires depository institutions to provide written notice to their respective federal banking agency of contracts or relationships with TSPs that provide certain services, including check and deposit sorting and posting, computation and posting of interest, preparation and mailing of checks or statements, and other clerical, bookkeeping, accounting, statistical, or similar functions such as data processing, Internet banking, or mobile banking services.