Financial firms rely on a long list of outside vendors: core processors, cloud providers, payment platforms, loan origination systems, CRM tools, IT providers, and marketing services. Each one may store, process, or access customer data. When a vendor is breached, regulators and customers still hold the financial institution responsible. That is why third-party risk management has become a central focus of examiners and auditors.
Here are best practices for building a vendor risk program that is thorough without becoming a paperwork burden.
1. Build A Complete Vendor Inventory
Start by listing every third party with access to your systems or data. Include obvious vendors like your core processor and less obvious ones like document shredding services, marketing agencies, and software add-ons. For each vendor, record what data they handle, what systems they access, and who owns the relationship internally.
2. Tier Vendors By Risk
Not every vendor deserves the same level of review. Classify vendors based on:
- Sensitivity of data they access
- How critical they are to operations
- Level of access to your network and systems
- Regulatory significance of the services they provide
Critical, high-risk vendors receive deeper due diligence and more frequent review. Low-risk vendors may only need a brief annual check.
3. Perform Due Diligence Before Signing
For higher-risk vendors, request and review:
- SOC 2 Type 2 reports or equivalent independent assessments
- Security questionnaires covering access control, encryption, monitoring, and incident response
- Business continuity and disaster recovery plans
- Financial stability information for critical providers
- Evidence of cyber insurance coverage
When reviewing a SOC 2 report, pay attention to exceptions and to complementary user entity controls, which describe what your organization must do for the vendor’s controls to work.
4. Put Security Requirements In Contracts
Contracts should define data protection obligations, breach notification timelines, audit rights, data return and destruction at termination, subcontractor restrictions, and service levels. Regulators expect these terms to exist for critical service providers.
5. Limit And Monitor Vendor Access
Give vendors only the access they need. Require multi-factor authentication for remote connections, use separate accounts for each vendor, log all activity, and disable access when it is not in use. Vendor remote access is a common path for attackers, so treat it like any other privileged access.
6. Monitor Vendors Continuously
Risk does not end at onboarding. Review critical vendors at least annually, track changes in their services or ownership, watch for public breach reports, and request updated SOC reports each year. Some firms use external rating services for added visibility.
7. Plan For Vendor Incidents
Include vendor scenarios in your incident response plan. Decide how you will respond if a vendor reports a breach, how you will assess customer impact, and how you will meet your own notification obligations. For critical vendors, have a contingency plan in case their service becomes unavailable.
8. Manage Fourth-Party Risk
Your vendors have vendors. Ask critical providers which subcontractors handle your data and how they oversee them. Concentration risk, where many vendors rely on the same underlying cloud or processor, is also worth understanding.
9. Plan Clean Offboarding
When a relationship ends, revoke access, retrieve or confirm destruction of data, and document the process.
10. Report To Leadership
Boards and senior management should receive regular summaries of vendor risk, including critical vendors, open issues, and significant incidents. This oversight is an explicit expectation in many regulatory frameworks.
Keep It Practical
A vendor risk program does not have to be complicated. A clear inventory, risk tiers, a standard questionnaire, contract language, and an annual review cycle cover the majority of what examiners look for. Supporting tools and a knowledgeable partner make it easier to sustain.
CTS Companies helps Michigan financial firms manage technology vendor risk and secure vendor access as part of our cybersecurity services for financial services and SEC and FTC Safeguards support. Talk to an expert about strengthening your program.