When most bankers and credit union executives think of concentration risk, they think of lending—but concentration risk has a different meaning when talking about third-party vendor management. Regulators are looking at two main concerns: Over-reliance on a single vendor & geographic concentration.
Compliance risk is the danger financial institutions face when they outsource product and service delivery to third-party vendors. It’s not a rare occurrence. FIs are regularly called out by regulators when their vendors fail to follow the rules.
If you think it’s tricky to keep track of the rules and regulations of your regulatory agency, imagine having to follow the legal, regulatory and operational requirements of foreign countries.
That’s exactly what needs to happen if a vendor is conducting any segment of your business in another country. Country risk is “an exposure to economic, social, and political conditions in a foreign country that could adversely affect a vendor's ability to meet its service level requirements,” according to the FFIEC’s Appendix C: Foreign-Based Third-Party Service Providers.
Strategic risk is the possibility that a company doesn’t make decisions that support its long-term goals. Companies that aren’t managed well and make poor strategic decisions may provide sub-par products or services or even close shop.
Ben Franklin once wrote that “Glass, china and reputation are easily cracked, and never well mended.” Reputational risk is present any time a vendor enters the picture, so it makes sense to spend the necessary time and resources to choose only those vendors who have proven to be trusted and valuable partners.
Vendor risk management is an ongoing process—one that begins with due diligence before a contract is signed and continues with monitoring throughout the length of the relationship. This blog series on the Top 10 risks will help you more effectively...
Credit risk is the strength and ability of a company to manage debt and stay in business to ensure continued operations. Credit risk is a real concern. A financial institution that partners with a financially unsound vendor may find itself suddenly cut off from a critical product or service if that firm goes under—drawing the wrath of regulators and customers. Join us as we explore credit risk, one of the Top 10 Risks Third-party Vendors Pose to Financial Institutions.
Not every third-party vendor requires the same level of scrutiny, the Consumer Financial Protection Bureau made clear in its October 31 guidance update on risk management for third-party service providers. Supervised banks and non-banks have the “flexibility” to perform an...