August 15, 2023

Should You Outsource Your FDICIA Testing?

Outsourcing Financial Data Protection and Information Security (FDICIA) testing can help financial institutions potentially reduce overhead costs that come with hiring, training and retaining qualified employees on an in-house team. A lack of internal experience and specialized knowledge can also negatively impact your organization’s ability to manage and monitor FDICIA compliance. By outsourcing these key responsibilities, you can create and sustain a strong control environment that complies with federal regulations.

Key Takeaways:

  • Using a trusted third party to outsource FDICIA testing may provide your financial institution with the specific resources, experience and skills to effectively manage and maintain FDICIA compliance
  • Outsourcing could potentially reduce some overhead costs associated with hiring and training a workforce to handle FDICIA testing internally
  • Before selecting an outsourcing partner, complete due diligence to verify their processes, controls and regulatory knowledge
  • Consult with the appropriate regulatory authorities to ensure your organization complies with any and all requirements or restrictions related to outsourcing

Considerations When Outsourcing FDICIA Compliance Testing

The decision to outsource FDICIA compliance testing should be based on a careful assessment of your financial institution’s needs, capabilities and risk appetite. Before making a decision, evaluate the potential benefits and drawbacks of outsourcing. This should include considering factors such as expertise, cost, risk management, control and regulatory considerations in order to make an informed decision that aligns with your organization’s unique circumstances.

When considering outsourcing FDICIA compliance, financial institutions should first review relevant regulatory guidance and consult with their regulatory authorities to ensure compliance with any specific requirements or restrictions related to outsourcing.

More Access to Expertise and Resources

Remaining in compliance with FDICIA requirements requires specialized knowledge and experience with risk management, internal controls and information security. Some banks, credit unions or other financial institutions may already have an internal team in place to manage FDICIA testing, but a lack of specialized skill or time restraints may affect their ability to perform as needed.

Outsourcing FDICIA testing to a third-party service provider may help your financial institution access expertise and an advanced skill set that your organization may not currently maintain in-house.

Increased Cost-Effectiveness

Compared to maintaining an in-house team to manage FDICIA compliance testing, there may be some cost advantages to outsourcing. If your institution doesn’t maintain an internal team dedicated to this function, you would need to hire and train a new team, along with all the expenses that come with those actions. Salary, health care, retirement benefits and other overhead costs associated with the creation and ongoing training of an in-house team could potentially be avoided by outsourcing those functions instead. Conducting a cost-benefit analysis to assess the long-term financial impact of outsourcing as opposed to managing compliance internally should be one of the first steps.

Selecting an Outsourcing Partner

Once the decision to outsource has been made, the next crucial step would be to choose a third-party service provider with a process you trust and strong controls. This step is critically important to ensure your chosen service provider can effectively manage FDICIA compliance on behalf of your institution because you remain responsible for the overall compliance program, even if you outsource.

After selecting a service provider, establish clear lines of communication so important information can be passed along quickly and efficiently. Consider assigning a point person to provide regular oversight of the outsourced function to ensure all compliance requirements are met and risks are adequately addressed. Before they begin work for you, define your expectations with the service provider so all parties remain up to date on important deadlines or compliance matters.

The Anders Banking and Financial Institutions team works with organizations to navigate complex compliance requirements and changing regulations to ensure you’re prepared to serve your clients. Learn how we can help your institution remain in compliance, and the associated fees, by contacting Anders below.

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