Outsourcing Overseas and Proper Vendor Oversight for a Non-Bank Lender

If you've elected to leverage the benefits of outsourcing a function to an overseas based partner, it’s important as a vendor manager to ensure that senior leadership is on-board with any associated risks. Let's go through the pros and cons to offshoring for a non-bank lender.

The Benefits of Overseas Vendors

From a benefit perspective, there could be the cost advantage of overseas employees performing more administrative functions of the mortgage lending process, and because of time zone differences, a loan application may be moving through the process while the lender is literally sleeping! 

The Concerns with Overseas Vendors 

Typically, these functions are not customer facing, but the crux of the concern is that your non-public personal information (NPPI) data is now being accessed by a third party who happens to be several thousand miles away. Access to and storage of that data now has the potential to be a prime target for identity theft. 

System access is another concern. Here are some key questions to ask:

• How are overseas contractors accessing the data? 
• Is the data stored on the vendor’s data center or are they accessing the lender's systems? 
• What controls are in place to monitor and track this? 
• Is system access tracked and audited for any suspicious activity? 

There is also environmental risk to consider. Ask yourself this question:

• Is the country of origin susceptible to power outages which may impact production? 

Overseas Vendor Is Considered Critical

Under the banner of trust but verify, it becomes apparent that an overseas vendor should be categorized as a critical vendor. While the functions performed may not critically hinder the mortgage operation, the fall-out from the increased risk of a data breach or poor physical and cybersecurity should be cause for concern. Make sure you know the details of that vendor’s operation.

5 Next Steps to Take

To gain that knowledge of all details of the operation: 

1. Speak with your vendor about organizing a site visit. Getting the logistics planned correctly is critical for a successful trip. 
   
2. Set up the site visit. You’ll need an invitation from the vendor stating that you (the person conducting the audit) will be visiting on “X“ date, duration and possible locations.  
3. Ready your passport and other necessary travel preparations. You'll most definitely need an up-to-date passport, but are there other visa requirements? Vaccinations? For advice regarding passport and visa requirements, vaccination requirements and general etiquette and safety advice, visit travel.state.gov.
   
4. Conduct a vendor audit. Once you're onsite, make sure you back up all notes on your corporate shared drive. If you elect to save to a thumb drive, ensure this data is password protected. The back-up will ensure you have the data once you are back on U.S. soil should anything be lost in transit.
   
   Since the focus has been on data exchange, this is also the time to physically audit the data center. Typically, these are in other cities away from the main outsource production office. As part of the planning stage, make sure to include this in your requirement list. 
5. Finalize the report. Because of the high risk exposure for this vendor, make sure that the audit report and executive summary are submitted for final sign off by your corporate vendor management board.
   
   Since the board level is ultimately responsible for the vendor management function, unless the audit report and executive summary have been approved, it’s unlikely that the examiner will consider the actual audit to have been finalized. In turn, this may be reported back as a matter needing attention (MRA). Don’t let your hard work go to waste.

State and federal examiners and investors have been increasingly asking about the oversight practices of the overseas vendor. Make sure you follow these tips to ensure they’re satisfied.

As you've read, vendor oversight and ongoing monitoring is an important activity, especially for your critical third parties. Download our helpful infographic to ensure you're performing this function properly.