You Can’t Outsource Responsibility
The vast majority of financial institutions rely on third-party service providers to offer not only specialized IT services and technology assistance that help improve the overall quality and efficiency of the organization, but also for the software and hardware that actually run their business. However, even when a service is outsourced, the ultimate responsibility for the management of the vendors and the risks associated with that activity lies with the financial institution, specifically the Board of Directors and the senior management team.
The Burden of Vendor Management
All federal regulators have issued guidelines recently to help financial institutions understand and manage the risks associated with outsourcing a bank activity (including supporting a bank activity) to a service provider. To remain compliant with governing organizations, it is important for all financial institutions to find ways to strengthen their vendor management programs.
While it is more important than ever for financial institutions to manage the risk associated with vendors, many struggle with the best way to efficiently and successfully accomplish this. Most community financial institutions do not have a formal internal department dedicated to vendor management. In fact in a recent survey, only one out of 300+ of our financial institution clients has a full-time dedicated vendor relationship manager. Instead, because many outsourced relationships have a technology component, this responsibility often falls to the IT department or the ISO. Furthermore, most still perform this process manually, potentially leaving the institution vulnerable to risk.
Finding the Right Partner
Many financial institutions are looking for ways to more effectively manage their outsourced vendors and protect themselves from the risk, often referred to as inherited risk, acquired by association with outsourced service providers. Financial institutions must be aware and responsible for any cybersecurity risks of their vendors, and the potential for any vendor that stores, processes or transmits data to expose the bank or credit union to additional risks. In addition, the criticality of the vendor must also be assessed. What specific processes performed by the institution require proper operation and/or support from the vendor? Does the contract specify both required actions as well as specific remedies in the event of a cybersecurity incident at the vendor?
Is Automation Right for You?
So, what is the best way to manage this risk in an efficient manner while not overwhelming the vendor manager? Oftentimes, financial institutions determine that implementing an industry-specific and automated vendor management program is the most cost-efficient method to control and manage these risks. Implementing automated vendor management solutions built around the specific needs of all of the key players within the financial institution saves a tremendous amount of time and money, reduces risks and also eliminates compliance headaches. A complete vendor management system ensures your vendor managers (and any other stakeholders) are notified of all of the critical activities and actions required to effectively monitor a third party relationship, such as ensuring all risk assessments, controls reviews and documentation, is up to date.
Automating vendor management functions not only saves your financial institution time today by helping you focus your resources, but also helps protect you from future regulations and guidelines. It also reduces costs through closer oversight of contract renewals; provides reporting to all stakeholders; and generally increases security (including cybersecurity) throughout the organization.
Ultimately, it is the financial institution’s responsibility to protect the financial institution and its sensitive data no matter where that data is stored, processed or transmitted, and an automated vendor management solution is an important step in this process.