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5 Unique Challenges of TPRM for Financial Services (and 4 Steps to Overcome Them)

In the last 20-plus years, the role of technology in critical business processes has undergone a complete overhaul—through digital transformation and the cloud computing revolution. These developments have meant that organizations no longer need to “build” capability in these areas or maintain on-prem data centers. Instead, they can partner with vendors and service providers to buy these capabilities. 

That’s placed a greater importance than ever on third-parties and vendors, which has in turn made third-party risk management a top concern for every company. But while this challenge cuts across industries, not all businesses feel the weight of increased risk equally. 

The Financial Services industry faces a series of unique challenges when it comes to third-party risk management (TPRM). In this article, we’ll examine what makes Financial Services such a unique industry when it comes to third-party risk and take a closer look at the unique approaches financial companies need to take in response. 

What is Unique about TPRM in Financial Services? 

High-stakes Data Sensitivity

Financial institutions offer an enormous variety of services entailing large amounts of sensitive data. They also work with a diverse clientele, meaning they are responsible for storing and transmitting everything from microtransactions and personal financial records to the large-scale transactional data of multinational corporations and governments. These factors make the risk profile of Financial Services organizations high, even compared to other data-centric industries. 

Systemic Importance

The health and security of financial institutions is critical for the continuity of major global economic systems. Third-party vulnerabilities can impact the stability of these systems and create major downstream disruptions across industries, geographies, and the lives of individuals.  

Stringent Regulatory Landscape

Because of the sensitivity and criticality of the data they handle, Financial institutions operate under a microscope of regulatory scrutiny relative to other industries—even those that are themselves highly regulated. 

For example, while industries like tech and manufacturing must remain compliant, their regulatory burden tends to focus on things like data privacy and supply chain integrity. Financial Services must comply with privacy regulation, too, but they are also accountable to financial frameworks like Dodd-Frank or Basel III that arose from the 2008 financial crisis, many of which place important parameters around operational standards, such as liquidity.

Variable TPRM Needs

Within Financial Services, company size and offerings can have a dramatic impact on TPRM needs:

  • Small to midsize businesses—The need to balance regulatory compliance with budgetary constraints often leads these organizations to pursue cost-effective solutions and efficiencies. Streamlined, multi-functional TPRM tools and processes may suit these companies best. 
  • Large and multinational businesses—Given their scope, such organizations tend toward a comprehensive, globally-integrated approach to TPRM. With fewer cost restraints, such organizations can emphasize pressing needs like real-time risk monitoring and advanced analytics to guide decision making. 
  • Investment and Insurance businesses—As a subset of Financial Services, these organizations face their own unique regulatory environment that require more customized risk-management frameworks aligned to their specific compliance needs and operational models. 

Rapid technological evolution

While considered a traditional industry, the applicability to core functions of fintech innovations like blockchain and AI-driven automation means many Financial Services companies have become rapid adopters. This pace of change makes for a continually evolving risk environment that demands agility and foresight in TPRM strategy and solutions. 

How Can Financial Services Companies Adopt an Effective Approach to TPRM?

With the unique challenges facing their industry, Financial Services organizations must take a strategic approach to TPRM that is equally unique. Here are some of the most important elements for TPRM leaders in finance to consider as they build and evolve their program:

Fully integrated approach to risk management

When Financial Services companies partner with a vendor or other third party, it creates a deeply interconnected ecosystem of dependencies with other business systems, workflows, and processes. Third-party risk management in this context must be more closely aligned with overall risk-management strategy that accounts for cybersecurity, operational, and reputational risks.

Strong TPRM process can be the anchor of this kind of comprehensive approach to risk because it pulls together disparate stakeholders across the business. The foundational pieces of a holistic TPRM program should include:

  • Governance—A governance plan provides guidelines for oversight and ongoing management of your TPRM program. Strong governance includes accountability for regulatory compliance, details clear lines of communication and reporting, and outlines processes for continuous improvement. It will also help to maintain vendor relationships, contract management, and ongoing transparency.

    Your governance team should also be cross-disciplinary, including representation from stakeholders including Procurement, IT, InfoSec, Legal, Compliance, and any impacted business units. Also consider an executive or senior-level sponsor for your governance team.
  •  Standardized, documented procedures—These will help to ensure consistency in your approach across vendor types and business units. Your governance team should create clear documentation for identifying and measuring risk, assigning controls for risk reduction, and incident response (more on that in a moment). You should also create documentation to codify vendor relationships, expectations, and service-level agreements (SLAs).
  • Ongoing program management—Continuous program management means determining the right metrics to measure results and progress. Define clear metrics for risk indicators unique to Financial Services, performance, and compliance. A shared dashboard with stakeholders across the business is also helpful to improve communication and visibility, guide informed decisions about vendors, aid in contract negotiation, and hone resource allocation. 

Rigorous security assessment process

Given the regulatory pressures and the systemic importance of the Financial Services industry, having an effective, efficient approach to third-party security assessments is critical. Here are some key elements of security assessments to keep in mind: 

  • Industry-standard frameworks—Matching the right vendor with the right assessment questionnaire or framework is critical to ensure regulatory compliance. Developing a consistent, clear scoring system for determining vendor risk based on the types and volumes of data the vendor will have access to. This will allow you to apply a standard approach to vendors of similar risk profiles and select an assessment framework that matches. 

Identify control issues—Use industry best practices and standards to evaluate and benchmark vendor controls such as cybersecurity measures, data protection/retention policy, disaster recovery, and regulatory compliance. Once identified, clearly detail your expectations for remediation. 

  • Create a cadence of follow-up and reassessment—Determine how often you should reassess your vendors depending on their level of risk, any control issues you identified during the assessment, and their criticality to your business. Detail this plan with your vendors and establish clear and open lines of ongoing communication. 

For Financial Services, your assessment plan should also include a…

Business impact analysis (BIA)

Given the systemic importance of the financial industry, it’s especially important to ensure your third-party ecosystem is resilient and has taken into account any possible loss of service. A business impact analysis is conducted to determine the results of any service outages and document information to develop responses. 

After conducting a BIA, incorporate your findings into your vendor assessment process, taking care to include:

  • Recovery plans—how will your vendors reestablish services after a disruption?
  • Business continuity plans—how will your vendors continue to function and support you in the event of a loss-of-service event? 
  • Disaster recovery—in the event of a natural disaster or other emergency, this is the roadmap for next-steps and contingencies 
  • Ongoing testing—Is your vendor running training/testing scenarios to account for new potential threats and to ensure readiness in the event of an incident? 

Investment in the right TPRM technology

Given the complex, integrated nature of third-party risk management within Financial Services, many companies find it useful to employ a TPRM tool. Selecting the right tool will vary based on your specific needs, but be sure to keep these things in mind when choosing a solution:

  • Access to the right assessment frameworks—Be sure that your tool includes ongoing access to the most relevant, current industry frameworks. It’s also important to understand if your TPRM solution is adaptive to the fast pace of regulatory change facing the industry. For example, does your chosen solution provide continuous real-time updates to existing frameworks to keep up with new regulation? 
  • Flexibility and agility—The regulatory environment isn’t the only thing with the potential to change quickly. Fintech innovations place a premium on a TPRM solution that can be utilized for a wide range of vendors and allow you to assess new and emerging technologies. 
  • Integration with other systems—Given the multi-disciplinary, holistic approach to TPRM that is necessary for Financial Services companies, consider a tool that can integrate easily with the systems and software you and your teams use most often. This leads to greater transparency, communication, and efficiency while also reducing the complexity of your tech environment. 
  • Opportunities for automation—Without the right tool, vendor assessments remain a highly manual process of information collection, tedious back-and-forth, and documentation review. Select a tool that allows you to automate some of these rote manual tasks. This is is an important element for both smaller organizations seeking greater efficiencies without adding headcount and larger organizations who require scaleability. 

Whistic Provides TPRM Solutions Built with Financial Services in Mind

The Whistic Platform is designed to address the specific TPRM requirements and challenges of the Financial Services industry:

  • An all-in-one tool flexible enough to serve as a total TPRM solution for smaller financial institutions and powerful enough to meet the needs of large global organizations
  • Whistic integrates seamlessly with the software your organization uses most—like Slack and Salesforce—so it works the way you do. 
  • Whistic Assess comes with access to a growing library of more than 40 industry-standard security frameworks and questionnaires, with additional frameworks and customized assessments added whenever new regulation arises—giving users the power to remain compliant.
  • AI-powered capabilities eliminate the manual tasks of security assessments, taking the time to complete an assessment from hours or days to minutes. Document summarization automates review of detailed security reports like SOC 2 without poring through them line by line. This increases your assessment responses from vendors and reduces back-and-forth. 
  • Vendor for Financial Services? Whistic Profile makes it possible for third-parties to automate assessment response with AI-driven Smart Response, so you can accelerate audits, reassessments, and inquiries while removing the burden on InfoSec and Sales. This makes it simpler and faster to be a great partner to your Financial Services customers.

The unique needs of your industry mean that choosing the right TPRM solution is an important decision. Our team is here to show you the ins and outs of the platform, so you can see it in action and decide for yourself if it’s the right fit for your business. Set up some time with our TPRM experts today, and let us show you the Whistic difference. 

Vendor Assessments Third-Party Risk Management