A primary objective of the regulations pertaining to third-party vendors is to determine whether the financial institution’s third-party relationships create more risk than the financial institution can identify, monitor, manage, or control.
The regulators’ concern stems from the fact that third-party vendors may not be directly subject to certain banking or financial regulations and the reporting requirements.
The Consumer Finance Protection Bureau (CFPB) holds the financial institutions responsible for any breach of regulations either from their side or from their vendors and suppliers.
As the financial institutions must bear the costs of suppliers’ misdeeds, they now have a strong incentive to broaden and deepen the way they manage vendor relationships. And there is also a business case. The effective third party management is a mainstay of operational health and cost management. By far, the biggest driver of Vendor Risk Management (VRM) is the proliferation of regulatory mandates for risk monitoring of third parties that can access sensitive personal data, such as payment card and protected health information.
Broadly VRM has the ability to:
- Categorize vendors and/or their services and contracts into different tiers of risk
- Support methodologies for the detailed assessment of risks associated with services and contracts
- Create qualitative and quantitative analytical tools to assess and prioritize risk
- Discover relationships and patterns
- Assess the impact of vendor risks against compliance obligations
- Develop templates and frameworks designed to support specific mandates, such as those of the PCI and the Gramm-Leach-Bliley Act
- Build a shared content including a database of vendor risk assessments or scores that can be used by multiple customers
- Create a risk register that includes a description of risks and their metrics from a business perspective and that maps them to controls, owners, remediation actions, vendors, business entities, performance metrics and others
- Assess vendor risk based on internal and third-party unstructured data
An effective VRM program evaluates tracks and measures third-party risk to assess its impact on a business, and develop controls or other forms of mitigation to lessen the impact if risk events occur.
Tech Mahindra is partnering with Metricstream to bring in best-in-class innovative VRM solution to cover sustainability, reputation and financial viability of its clients.
Our VRM application offers a full vendor life-cycle approach, from information gathering to due diligence, risk assessments, contract negotiation, ongoing monitoring and termination workflows and is recognized for high levels of flexibility, industry knowledge and process capability.