Review of regulatory compliance oversight requirements for any organization can be a necessary reminder for the C-Suite and a reminder to better understand the purpose of, and requirement to implement, a robust third party risk oversight program.
The C-Suite must fully understand that while products and services may be outsourced, in the end, the risk of using a third party for a product/service remains with the organization receiving that product/service. Think of the risk as a cost of doing business with the third party vendor.
Third party risk management should be viewed as the version 2.0 where all aspects of vendor strategy come together. The risk in third party risk management is constant.
Third party vendors are now deeply intertwined within operations. This is evidenced by the many data breaches as of recently, which are happening to a third or fourth party vendor but then also impacting the organization’s reputation. Reputational risk is measured in time and money and both are valuable resources.
Purpose of the Third Party Risk Manager
As it’s common for internal compliance and vendor risk managers to get ready for their regulatory examinations, the purpose of the third party risk manager must apply a similar approach to the vendors which process or have access to customer non-public information.
Keep in mind, in reviewing the organization, an examiner’s interest is in protecting customers and ensuring that organization is adhering to and working within all federal consumer protection laws. It’s this framework that boils down the importance of your organization’s compliance framework and overall business operations.
Third Party Risk Management Objective
The purpose or objective of running a third party risk management program effectively is to show from a regulatory approach that any vendor has been vetted before final selection, is properly managed and actions are taken to ensure that the vendor may not fall foul of any federal consumer protection laws. Ongoing vendor management also provides strategic and competitive advantages.
As stated by the CFPB guidance, the examiner must review and assess the ability to: detect, prevent and correct practices presenting a significant risk of violating the law and causing consumer harm.
These same recommendations can be implemented by your internal vendor managers or outsourced to a third party expert to assist, who can assist with terms of pre-contract due diligence, performance assessments, contract management, policy reviews, onsite audits and noting any findings or corrective actions with documented action dates.
By implementing these best practices, not only will your board be able to demonstrate to the regulators your commitment to third party risk management, but your team will have made great strides in mitigating the impact of third party risk to your business operations, executive team, board and shareholders.
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