Let’s discuss building out a third party risk management program, aka a vendor management or vendor risk management program from the ground up. You’ve joined an organization that lacks any sort of discipline around third party risk – been there, done that! You have a Herculean task on your hands, so where do you start?
11 Steps to Implement a Vendor Risk Management Program
- Review the relevant guidance from your prudential regulator and the FFIEC. This should always be your starting point. Reviews should happen periodically as in this industry the guidance is frequently evolving, along with other regulatory guidance that may impact your vendor risk management plans.
- Enlist the help of senior management and your board of directors. You’ll need them actively involved in establishing a budget, setting hiring goals, reviewing your processes and escalating issues with third parties. Remember, OCC Bulletin 2013-29 requires active senior management and board involvement.
- Take the time necessary to thoroughly document your approach to third party risk management, closely aligning it with the regulatory guidance. Involve subject matter experts such as your business continuity planning manager, your compliance officer and your information technology team as well as have it reviewed and approved by counsel and the board.
- Work with accounts payable to get a list of vendors and then hone it down to ones that need to be actively managed. These are called your actively managed vendors. If you need assistance determining which vendors may not need to be actively managed, you can take a look at Venminder’s blog post on Vendor Exclusionary Policies here.
- Double check your vendor list and reconfirm the list with the lines of business. Have them sign off on its accuracy (believe me – that is one big milestone).
- Begin mapping out the process steps for each of the pillars of third party risk management. Focus very heavily on ensuring that your approach is truly risk based – failing to do so can be a huge waste of time or create inconsistent practices.
- Develop budget and staffing plans. Be sure to account not only for the talent needed, but properly credentialed staff and a software solution to help manage it all. Think CISSPs for business continuity, disaster recovery and SOC reviews and CPAs or commercial credit analysts for financial reviews. If you can't staff them on your team, please be sure you have access to outside resources, either around your organization or from an independent expert.
- If you haven’t already asked audit and compliance to help evaluate what you’re creating, now is a good time to do so. This will help ensure your vendor management program framework is up to examination standards, something you won’t regret confirming!
- Refine your program documents to be certain that the work product matches the design. A mistake that I very painfully and freely confess to having made.
- Build rigor and discipline around the vendor risk management process, educate the lines of business and keep senior management and the board updated as time goes on.
- Finally, ensure that you are taking a vendor lifecycle approach and updating everything regularly, based on risk and/or changes in third party relationships. Doing so is not just a regulatory requirement, it’s also a sound business practice.
Implement these 11 steps and you’re setting yourself and your organization up for a very well-developed and organized third party risk management program.
You've learned the proper vendor risk management program framework - but what about your policy? Your policy, program and procedure documents are all foundational elements to your vendor risk management strategy. Download our guide to learn how to craft an effective policy for vendor risk management.