Why Is Vendor Management Software So Crucial For Financial Institutions?
Vendor management is a complex task, yet a necessary undertaking for any organization dealing with third parties.
Financial institutions such as banks, credit unions, insurance firms, and trust companies often rely on third parties for software, products, and services. In fact, over half of the threats to your financial business can be caused by your vendor network or the fourth parties they subcontract.
Risks may vary from noncompliance with your company policies or industry regulation to personal data protection, or financial risk that could impact your bottom line. The best way to ensure these third and fourth parties are in compliance with appropriate laws, regulations, and best practices is through best-in-class vendor management software.
The increasing complexity of vendor networks
According to Compliance Week, a recent survey shows that 18% percent of companies work with more than 1,000 third parties, and another 16% said they work with over 10,000 third parties.
The volume of third parties increases the risk factor – which means that managing vendor risk manually is an ineffective option. Vendor management software automates the process, supporting risk management throughout the relationship lifecycle.
The third-party numbers are significant, and this doesn’t take into account fourth parties – how well does the vendor manage its own vendor relationships? Do they have the appropriate policies and procedures in place to ensure that you are not exposed to fourth-party risk?
Alarmingly, third parties are involved in about 80% of all Foreign Corrupt Practices Act (FCPA) enforcement actions, and according to the Privileged Access Threat Report 2019, 58% of companies surveyed believed they had likely suffered an organizational breach caused by vendor access.
The role of vendor management in risk mitigation & enterprise compliance
Meeting vendor management compliance regulations can be difficult. Without software, your financial institution faces increased risk and exposure to penalties by regulators.
Financial industries need to protect themselves against third-party compliance risks that might expose them to regulatory scrutiny and penalties. Some of the regulations that can be addressed by vendor management software include:
- Federal Reserve
- Sarbanes Oxley
While enterprise compliance in itself spans various requirements that differ by geography and industry, vendor management adds another layer of regulation that must be adhered to.
Ineffective vendor management may cause your business to face the following risks:
- Violating legal or compliance regulations, which can lead to fines and lawsuits
- Data security breaches compromising employee or customer data. This may cause financial and/or reputational damage
- Loss of intellectual property
- Contractual disputes
- Operational breakdowns
- Loss of revenue
Effective vendor management software for financial institutions
According to a global survey by Deloitte, 94.3% of executives have low to moderate confidence in their risk management tools and technology.
To be confident that you have the best-in-class vendor risk management software, it should help your organization mitigate and reduce risk, achieve 100% compliance, drive financial performance, increase cost savings, improve earnings, and deliver shareholder returns.
Compliance Week found that a recent survey showed 70% of organizations believe they are underinvested in Third-Party Risk Management. Make sure your financial services organization isn’t making the same mistake.