Third-party risk management (TPRM) involves creating a framework of policies, processes, and tools to manage and monitor the risk arising from vendors and other external business relationships.
Proposed regulatory guidance on managing third-party risk from the FDIC, Federal Reserve Board, and OCC defines the third-party risk management lifecycle for financial institutions as including the following stages:
The guidance acknowledges that third-party relationships can provide “significant advantages” in supporting operational efficiency, serving consumers, and remaining competitive.
“As the banking industry becomes more complex and technologically driven, banking organizations are forming more numerous and more complex relationships with other entities to remain competitive, expand operations, and help meet customer needs.”
But the agencies also warn that third parties can present challenges such as:
Related Reading | Understanding the Third-Party Risk Landscape >
Third parties bring unpredictable challenges to organizations of all sizes and must be met with a strategy designed to address uncertainty. Successful vendor risk management can’t follow a “one-and-done” approach, but must be flexible and continuous through the lifetime of a third-party relationship.
However, establishing and sustaining healthy and secure vendor relationships doesn’t end after a certain number of steps. Re-assessing risks, controls, criticality, performance levels, and other factors keeps your TPRM program adaptable to changes.
And no matter how your management program is structured, regulators expect financial institutions to adopt effective processes that are “commensurate with the level of risk and complexity of their third-party relationships.”
Does your organization have the capabilities it needs to assess third-party risk and maintain an effective, compliant vendor management program? Learn more about developing a framework for the complete third-party risk management lifecycle in the Vendor Management Best Practices Playbook.
Then discover how Quantivate helps financial institutions mature their vendor management capabilities: