Third-Party Vendor Risk Management Challenges for Financial Services

3 minute read

October 2021

Today’s financial institutions face an incredible challenge when it comes to managing their third-party vendor relationships. Financial institutions already bear a great responsibility to their clients to protect their sensitive information while managing complex regulations. To add to this, third-party outsourcing is so widely used that regulators have placed increased pressure on organizations to address third-party risk.

Recent interagency guidance on third-party risk management from the Federal Reserve, FDIC and OCC call upon financial institutions to apply specific principles to the six stages of the third-party lifecycle. The guidance offers a framework for banking organizations to consider in developing sound risk management practices.

While many vendors add substantial value to their client’s operations, third-party vendor relationships also present reputational and financial risks that can blindside an organization. As networks grow, a vulnerability at one organization can provide an access point to countless others, threatening business operations and continuity. Financial institutions must develop robust processes for third-party vendor risk management to ensure consumer protection and operational continuity.

Managing Third-Party Vendor Risks: Start with Top Challenges Facing Financial Institutions

Financial institutions struggle to find the best approach to managing their third-party relationships despite the financial, reputational and operational risks present. Below are a few examples of the third-party vendor risk management challenges organizations face and the solutions to address them:

The Challenge: Regulatory Compliance. The financial industry is a highly regulated space across the world. It can be challenging for organizations to keep track of the regulations that apply to them – let alone those that apply to their vendors. Non-compliance penalties related to financial regulations can be very high, posing serious operational and continuity risks.

  • The Solution: Any third-party risk management strategy needs to begin by addressing regulatory requirements and establishing compliance guidelines. Vendor contracts should outline guidelines for maintaining regulatory compliance. Begin with a high level of vendor due diligence to understand the vendor’s regulatory requirements and monitor their compliance activities continuously.

The Challenge: Inadequate Ongoing Vendor Assessment Processes. Ongoing monitoring of third-party vendors is a key practice to manage risk throughout the relationship. Third-party risk teams struggle with this task as it can be a labor-intensive process to issue comprehensive vendor risk assessments on a scheduled cadence. On top of that, teams must also analyze vendor responses and make data-driven decisions. Teams often take a “one-size-fits-all” approach to this process by monitoring every vendor at the same level. Typically, this results in an assessment backlog which reduces the organization’s ability to stay ahead of risk.

  • The Solution: Optimize the ongoing vendor process by focusing on high-risk vendors, or those that meet critical vendor criteria. Vendors should be classified based on their inherent and residual risk levels to help with prioritization. Vendor questionnaires should be tailored to the vendor’s specific service type to avoid vendor fatigue and increase the likelihood of quality responses. Lastly, automating vendor risk assessment distribution and response collection can speed up the process.

The Challenge: Lack of Risk Prioritization in Vendor Contracts & SLAs. Financial services organizations run into trouble with their vendors when there is a lack of clarity around security and compliance expectations from the start. Teams may not include the right internal actors to address third-party risk in contract negotiations.

  • The Solution: It isn’t enough to assume that vendors will meet necessary standards and guidelines on their own. Third-party security practices should align with the organization’s priorities, which requires clear communication prior to entering the relationship. Build third-party relationships on transparency by outlining KPIs and security expectations in vendor contracts.

ProcessUnity Vendor Risk Management Helps Financial Institutions Manage Third-Party Risk

Tackling third-party risk within an expanding regulatory landscape isn’t easy – especially when organizations manage these processes in manual programs like Excel. ProcessUnity Vendor Risk Management provides organizations with an automated third-party risk management solution to streamline key stages of the vendor lifecycle. ProcessUnity Vendor Risk Management enables financial institutions to quickly adopt the solutions highlighted in this blog to better identify, manage and remediate third-party risk. To learn more about ProcessUnity Vendor Risk Management, visit

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ProcessUnity is a leading provider of cloud-based applications for risk and compliance management. The company’s software as a service (SaaS) platform gives organizations the control to assess, measure, and mitigate risk and to ensure the optimal performance of key business processes. ProcessUnity’s flagship solution, ProcessUnity Vendor Risk Management, protects companies and their brands by reducing risks from third-party vendors and suppliers. ProcessUnity helps customers effectively and efficiently assess and monitor both new and existing vendors – from initial due diligence and onboarding through termination. Headquartered outside of Boston, Massachusetts, ProcessUnity is used by the world’s leading financial service firms and commercial enterprises. For more information, visit