How to Strengthen Your Third-Party Risk Management Programs

The shift from critical infrastructure to cloud, managed, and hosted environments is accelerating – and it fundamentally alters your risk profile.

While these strategic decisions expand reliance of service providers to deliver critical operations, the mandate from regulators is clear: you can outsource the activity, but you can’t outsource the responsibility.

Banks and credit unions are feeling this shift firsthand.

In fact, cybersecurity remains the top internal risk, with 58% of community bankers identifying cybersecurity as an extremely important concern. What’s more? Technology implementation and related costs are ranked as the second-highest internal risk, highlighting the growing dependence on third-party providers to support critical banking operations.

For banks and credit unions, this means your vendor oversight is no longer just a compliance exercise. It’s a key component of risk management.

Why Third-Party Risk Extends Beyond Vendor Checklists

Evaluate how third-party relationships may impact your institution's ability to operate during disruptions:

• Data Communication Resiliency: Cloud infrastructure models increase the need for data communication resiliency across multiple communication paths.

• Support Models: The shared responsibility model is fundamental to cloud deployments. Does your third-party cloud provider understand how to support your key applications in the cloud?

• Policy Alignment: Regulatory guidance expects due diligence to confirm a third party's ability to adhere to your institution's policies for the outsourced activity. Document where patch windows, IAM (Identity and Access Management) provisioning and deprovisioning, MFA enforcement, and exception handling diverge from your standards, then for contract the delta rather than assume it.

• Delivery Oversight: With third-party involvement now present in nearly half of all breaches, periodic reviews are no longer sufficient oversight. Move from reactive SLA reporting to continuous Key Risk Indicator (KRI) monitoring with defined thresholds, named owners, and board-level reporting, applying the same rigor you would to an internal function.

Four Ways to Strengthen Vendor Due Diligence and Oversight

True risk management requires evaluating a vendor's operational viability in support of your business.

Consider incorporating four key dimensions into the expectations of your vendor relationships:

1. Business Continuity Awareness: Joint tabletop exercises to test interlocking RTOs/RPOs.

2. Strategic Vision: Assess their strategic position and the market for potential M&A activity or ownership structure that may impact the future of this critical solution.

3. True Cost of Ownership: Factor in realistic internal demands and solution adoption needs to ensure every bit of value in the solution is evaluated for adoption.

4. Onboarding Risks: Assess competing priorities and capacity for changes in managing expectations around integration risks and data migration and ensure alignment with internal controls.

Vendor due diligence should not be limited to security controls, policies, and audit results.

Your justification process should also consider risks related to the vendor’s delivery model and your ability to effectively oversee vendor performance.

A Simple Question to Test Vendor Resilience

Ask yourself: If this function were managed internally, would leadership be comfortable assessing its resilience through documentation alone?

As the industry continues to identify cybersecurity, technology implementation, and operational resilience remain top concerns for financial institutions, and reliance on external providers grows, you must evolve your oversight programs from periodic vendor reviews to continuous monitoring of operational, technology, and business risks.

Community bankers consistently rank these areas among their most significant internal risks, reinforcing the importance of ongoing accountability and visibility across critical third-party relationships.

Explore Emerging GRC Trends for Financial Institutions

Critical vendors play an essential role in delivering your products and services. By establishing continuous monitoring practices, tracking key risk indicators, and maintaining clear lines of accountability, you can better manage risk while supporting operational resilience.

Ready to learn more about governance, risk, and compliance (GRC) trends from experts who understand your business?