Vendor management, or third party risk management as it’s more commonly referred to, has been around for years. Having a firm grasp on the vendors with whom you are doing business isn’t new, but the regulatory expectations continue to evolve and grow at a rapid pace.
Whether you’re dealing with the very basic supplier or the most cutting-edge high-tech organization, there are certain things you should discern about every vendor.
6 Core Elements for Vendor Management
The basics of vendor management are well-explained in regulatory guidance (e.g., FDIC FIL 44-2008, FIL 3-2012; OCC Bulletin 29-2013, OCC Bulletin 7-2017), but to summarize some of the guiding principles, let’s review… a well-managed and functioning program should include at least these 6 core elements:
1. Due Diligence Standards
Set due diligence standards around vendor selection. Know the organization with whom you’re doing business. Determine their good standing and licensing to conduct business. Learn about their reputation and gather documents to show they are a well-managed and compliant operation.
2. Assess the risk
As you gather the various due diligence documents, start looking for gaps or areas that may cause concern. Use a rating system to be objective and consistent. Where you identify risks, determine what you can do to address and minimize exposure.
3. Ongoing Monitoring
How will you manage this vendor going forward? Are there performance metrics that will require regular reporting? Is there some sort of quality of service you need to measure?
4. Contract Standardization
Be sure that the vendor has certain obligations, such as notifying you of a data breach or changes in ownership or leadership. Make sure each parties’ roles and responsibilities to one another are clearly defined.5. Termination and Exit Strategies
Unfortunately, every vendor partnership comes to an end. Prepare for this by determining early on in the relationship how termination will be handled. Address items like the notification process, how data will be destroyed or returned and if you’ll bring the function back in-house or outsource to a different third party.
6. Board Involvement
Senior management and the board of directors must be kept informed of the status of your vendor management program. Inform and seek guidance and approval when needed.
You may be reading these five core elements and thinking they’re obvious, but surprisingly they’re often forgotten. Put a strong focus on each one and your program will be headed in the right direction.
Make sure you meet all the necessary regulatory requirements for third party risk. Download the checklist.