How to Determine Vendor Regulatory Risk

Podcast Transcript

Hi – I’m Kelly with Venminder. 

In this 90-second podcast, you’re going to learn how to determine the regulatory risk of your vendors.

We’ve developed vendor risk assessment templates to assist clients with their vendor risk assessment process, which involves knowing regulatory risk.

Regulatory risk is used to determine the vendor relationship’s risk rating. In order to determine this, many organizations reference the categories of risk found within the regulatory guidance such as FDIC-FIL-44-2008 and the FFIEC IT Examination Handbook. You must decide if the vendor presents high, moderate or low risk to you in those areas and then evaluate where they stand overall.

The major risk categories to consider include:

#1: Strategic risk, which is the risk posed by a third party whose products or services don’t align with your organization’s strategic goals and objectives.

#2: Reputation risk, which includes the risks present when a third party may cause harm to your organization’s reputation through illegal activity, bad customer service or any number of issues.

#3: Operational risk, it’s the risk found in faulty internal processes.

#4: Transaction risk, as it occurs when your organization fails to process a transaction correctly and it affects a customer. Any vendor’s faulty delivery of a product or service can cause your organization transactional risk.

#5: Credit risk, this risk conveys potential financial problems a vendor may be facing in the ordinary course of business.

#6: Compliance risk, which is risk that arises when the regulatory environment changes and laws or state or federal regulations are being violated either intentionally or unintentionally.

#7: And finally, Other, which is any risk you can identify that can’t be grouped into any other category. Things like liquidity, interest rate, price and legislative risk.

I hope you found this podcast helpful.

Thanks for tuning in; catch you next time!