How Strunk can assist you with Tiering your Vendors and applying the proper monitoring to them

A vendor is a company or individual that supplies a product or service to your organization, irrespective of a formal contract. For financial institutions, some vendors may include technology partners, banking equipment providers, financial partners, legal and professional services, and office supplies vendors.

Financial institutions sometimes work with hundreds of relationships with third-party vendors that can pose potential risks, and those risks vary based on the nature of the business. This is why it is important to have a comprehensive third-party risk management program. Not all vendors are created equally. Some products, services, and relationships may be more important to our organization than others. Additionally, some vendors may have more robust risk management procedures than others. This is why it is important to categorize your vendors based on risk. By using third-party risk assessment and tiering to each vendor relationship, financial institutions may be able to determine the appropriate mix of risk management and modify them to the specific risk of the relationship with the vendor. This way, the financial institution can prioritize which vendors to focus on for reviewing controls, policies, and procedures. Strunk’s Vendor Manager software can ensure that higher-risk vendors are prioritized and that monitoring activities are created based on their risk rating. Following this approach, financial institutions can manage risk for each third party and integrate the property compliance controls for the risk. By using the monitoring section inside of Strunk’s Vendor Manager software, financial institutions are able to assess how hundreds of important, high-risk relationships are performing across the board and create a vendor summary that will provide a greater transparency into these relationships.

Regulatory scrutiny and compliance pressures provide strong reasons to carefully consider vendor risk. Financial Institution leaders should also recognize that establishing stronger and safer vendor relationships is crucial for business success. The current challenge is that many banks lack a comprehensive vendor risk and monitoring program that takes into account the different types of services provided and the associated risks. However, the good news is that Strunk’s Vendor Manager software can help address this issue and automate the process.

Why Vendor Monitoring is Important to the Vendor Management Process

What is vendor monitoring, and why is it important to the vendor management process? Vendor monitoring, also known as ongoing monitoring, involves overseeing the vendor’s performance to determine if the vendor is performing as required by the service levels and contract terms.

The Third Party Risk Management Guidance states that ongoing monitoring enables a banking organization to:

  1. Confirm the quality and sustainability of a vendor’s controls and ability to meet contractual obligations.
  2. Escalate significant issues or concerns, such as material or repeat audit findings, deterioration in financial condition, security breaches, data loss, service interruptions, compliance lapses, or other indicators of increased risk.
  3. Respond to such significant issues or concerns when identified.

Strunk’s Vendor Manager software enables you to continuously monitor and manage your vendor relationships. The software allows you to configure ongoing monitoring activities based on the risk profile of each vendor. You can set reminders for when the ongoing monitoring item needs to take place.

Within the monitoring section of Vendor Manager, financial institutions can establish categories and metrics to document vendor performance findings and any necessary remediation measures. Strunk’s Vendor Manager’s monitoring section generates reports that highlight potential risks or significant issues requiring attention from senior management and the board of directors. This framework also provides feedback to your organization and ensures compliance with all regulatory expectations.

Vendor Due Diligence Material Tracked in Strunk’s Vendor Manager Software

Financial institutions regulated by the OCC, FDIC, and Federal Reserve must conduct due diligence on third-party relationships per the Interagency Guidance on Third-Party Relationships: Risk Management. Regulators expect financial institutions to review vendor documents thoroughly rather than just glance over them. Organizing all your vendor management in a secure, web-hosted database is the first place to start in this process. Strunk’s Vendor Manager software simplifies the overwhelming task of monitoring existing vendors and onboarding new ones.

A centralized repository for your due diligence documents ensures that your financial institution has a vendor management program that allows you to engage your vendors at each phase of the vendor lifecycle. This will ensure that all departments and business lines can easily access a unified document from your financial institution while dating it to make sure that it’s the most recent document. This process assists your financial institution in evaluating vendors to ensure they align with operational, financial, and regulatory standards.

Strunk’s Vendor Manager software automates due diligence process by sending alerts to financial institution stakeholders and vendors, saving time and effort. Vendor Manager automates vendor due diligence, providing a practical framework for deciding which vendors to assess in-depth, assessing the risk they present, and monitoring their performance. The Vendor Manager provides proactive risk management and reduces administrative burden. Strunk’s Vendor Manager software can help with your financial institution vendor due diligence to ensure that your organization has a process when entering into a third-party relationship. Click here to learn more.

 

Importance of an Effective Contract Review

The Interagency Guidance of Third Party Risk Management states that an effective third-party risk management life cycle consists of planning, due diligence and third-party selection, contract negotiation, ongoing monitoring, and termination phase.

One of the most critical aspects of the third-party life cycle is the contract negotiation phase. It is essential to evaluate a vendor’s contract with other parties, including sub-contractors, which might transfer or bring additional risk to the financial institution. A vendor contract, sometimes referred to as a vendor agreement, is a legal document that outlines the terms of an exchange of goods or services for payment between the two parties.  Through this agreement both parties understand their responsibilities and obligations during the transaction.

The primary object of a vendor contract is to ensure that all parties involved are aware of what is expected in terms of deliverables, payment, and other relevant details. In the event of non-compliance, the vendor contract also specifies the consequences. Negotiating vendor contracts at the outset of any vendor partnership assists financial institutions in better managing their risks. Vendor contracts usually contain legal provisions, often in a specific order.

Strunk’s Vendor Manager Software allows you to score individual contracts based on the presence and quality of key provisions. Strunk’s vendor contract review enables financial institutions to identify gaps in their contracts and manage the vendor’s risk appropriately.

How can Strunk’s software help with your vendor management program?

Regulators take compliance with vendor management regulations seriously due to the critical role third-party vendors play in delivering products and services. Using third-party services can increase the risk of a banking organization, but this does not mean that the organization can neglect its responsibility to perform all activities in a safe and sound manner. It is the responsibility of the organization to ensure compliance with all applicable laws and regulations, including those related to consumer protection and security of customer information. What exactly are the Regulators looking for in a Vendor Management program? Regulators will look for your program to have structure, be consistent, and have accountability. Strunk’s software can be your perfect solution to achieve your objectives. Let’s take a closer look at how it can help you.

The first thing that needs to be accomplished is to have the right structure for your program. The financial institution needs to have a well-documented policy describing how your board and senior management intend to execute vendor management. Strunk’s Policy Manager Software can provide your financial institution with a structured, centralized single source of truth for your organization’s policies. You can also use Policy Manager to document all of your procedures, including links to policies, ownership responsibilities, automated change logging, and multiple file attachments. If your financial institution does not currently have a vendor management documented policy, Strunk can start you off with our recommended standard policy.

Next, the financial institution must establish a consistent framework for implementing the policy that was established. Strunk’s Vendor Manager software can streamline and standardize the entire process. The Vendor Manager software is designed to transform a complicated process into a more organized and self-documenting workflow. It helps to streamline and automate the process, making it more efficient and easier to manage.

The financial institution must be accountable for its vendor management program. Strunk’s Risk Assessor software can assist in identifying what risk your organization must consider with your Vendor Management program, while also mapping what controls and procedures are in place for that risk.

Preparing for your next Vendor Management exam is crucial for your financial institution. Strunk offers several tools that can help you in this regard. While regulators do not expect perfection, they do expect progress and performance. By utilizing Strunk’s software and expertise, you can ensure that you are up-to-date and organized for your upcoming exam. This will make exam time much easier.

Vendor Management Breakdown

Over the years, banking partnerships with FinTechs have grown in number and complexity. Third-party risk management has become a growing focus for supervisory and enforcement agencies in recent years. To facilitate the increase in such relationships, the Board of the Governors of the Federal Reserve System (Board), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC), have released a final joint guidance to assist institutions in mitigating risks linked with third-party relationships.

Although it is stated that the guidance does not have the authority to impose new requirements on banking organizations, each agency will still assess their supervised banking organizations’ risk management of third-party relationships as part of their regular supervisory procedures. This includes evaluating the level of risk and the effectiveness of risk management to ensure that all activities comply with relevant laws and regulations and are conducted in a secure and sound manner. The guidance also emphasizes that corrective measures, such as enforcement actions, may be taken by the agencies if there are any violations of laws and regulations or unsafe banking practices by the banking organization or its third party.

Strunk’s Vendor Manager software has undergone a review to ensure that it aligns with the Final Guidance for efficient management of third-party relationships. Strunk has proposed some areas of improvement to enable our clients to clearly outline the structure of each third party and identify potential risks, as well as the appropriate measures to manage them easily. With our latest release on September 6th, 2023, you can view the new upgrades that have been added.

Here, you can find a document comparing the Interagency Guidance of Third-Party Relationships: Risk Management with Strunk’s Vendor Manager software. https://app.strunkaccess.com/v2/document/347

How Can Strunk Assist with Vendor Management

When it comes to evaluating third-party risk management, financial institutions can use their own methods to determine the level of risk for each partnership. The regulators understand that not all relationships require the same level of scrutiny, and it is important to recognize vendors with high and critical risks. At Strunk, we have created a vendor risk assessment in our Vendor Manager software that provides financial institutions with a baseline risk level for each vendor. This assessment takes into account the criticality of the vendor’s product and services and the risk associated with them. By analyzing the risk associated with each third-party relationship, financial institutions can maintain consistent monitoring and remediation strategies to prevent risks from occurring.

To effectively manage vendor risk, it is crucial to assess the controls put in place by vendors. Strunk’s Vendor Manager software offers vendor surveys that capture the controls in place for their risk. This tool also helps identify any gaps in the controls, enabling financial institutions to determine the residual risk posed by the vendor to their organization.

Our software aligns with interagency guidance and provides valuable assistance to financial organizations in implementing third-party risk management. It covers planning, due diligence, contract negotiation, ongoing monitoring, and terminating the relationship. With Strunk’s Vendor Manager software, financial institutions can manage the operational, compliance, and strategic risks associated with third-party relationships. For more information on Vendor Manager visit Strunk’s site to request a demo.

Vendor Due Diligence Material

Every critical and high-risk vendor must have their fundamental business information gathered. Community financial institutions can use this information to assess if the vendor complies with any relevant local laws and regulations, as well as to spot any potential future performance problems.

An essential element in the vendor risk management lifecycle is due diligence. In many businesses, conducting due diligence on each vendor is not just a good business practice but also regulated by the law. There are baseline or foundational documents that should be gathered to further examine the majority of vendor engagements, even though not all vendor relationships pose the same risks to a financial institution.

Collecting, reviewing and storing vendors’ due diligence materials is a vital part of the vendor management process. Vendors are required to present certain documents as proof of their internal risk management as part of the due diligence procedure. The vendor should be able to provide documents that are a crucial part of evaluating the vendor’s risk and the controls they have in place. Whether it’s a SOC report to confirm information security processes, internal compliance guidelines, or even a business continuity plan and testing.

After collecting and reviewing the vendor’s due diligence material, the financial institution should have a central location to store these documents securely and also receive notification when due diligence material needs to be collected again or is missing.  Strunk’s vendor management software, Vendor Manager, can assist with your financial institution’s vendor due diligence process and provide a streamlined process. Visit https://strunkaccess.com/vendor-manager/ to learn more.

Why is vendor management a hot topic in the world of financial institutions today?

Why is vendor management a hot topic in the world of financial institutions right now? It’s because regulatory organizations including the Federal Financial Institutions Examination Council, Office of Foreign Assets Control, and Federal Trade Commission are focusing on how financial institutions are managing the vendors they outsource to. The Federal Deposit Insurance Corporation (FDIC) has declared that an institution can “outsource a service, but cannot outsource the duty,” making it very apparent that the responsibility for compliance rests with the financial institutions. Various regulators refer to vendor management using various terms. Even though they all ultimately want the same thing, they approach it differently.  For regulators, third-party risk is a sensitive subject. There are many different types of risk that might be introduced when a bank outsources a task to a third-party. Assessing, evaluating, monitoring, and controlling those risks is the core of vendor management.

The importance of vendor management is something Strunk constantly think about, just like it is for the FIs we support. We take great pride in offering a vendor manager software and services that let our clients have an effective vendor management program.  Components of Strunk’s effective vendor management program:

  • Risk Assessments- Assist the financial institution in assess the risk level of the activity the vendor performs.
  • Surveys- Vendor questionnaires to elevate the controls that each vendor has for the emerging risk of the vendor.
  • Contract- Contract assessment, a place to capture and store the contract and its information.
  • Service-Level agreements (SLAs)- tracking SLAs to make sure that the vendor is sticking to the agreement and not being fraudulent.
  • Review- Reevaluating the risk the vendor has while also identify any concerns with the performance of the vendor.
  • Due Diligence- central location to store and evaluate due diligence material from the vendor.

In conclusion, a properly managed vendor relationship can result in greater quality, better service, lower costs, and happier clients.

The Importance of Impartial Vendor Reviews

Vendor Reviews provide an impartial view that allows users to evaluate vendor performance and situation since they allow users to; share expectations with vendors, be clear about the vendor performance metrics that are most important and assess the vendors’ track record of value delivery.

A vendor review should always cover core performance such as:

Efficiency of Business – Working with troublesome vendors frustrates workers and costs time and money. Assess vendors’ processes and systems, as well as how easy the vendor is to work with.

Regulatory Compliance- Many businesses rely on vendors to fulfill a range of third-party compliance requirements and regulatory standards. Vendors have a key role in assuring compliance with these standards, which are expanding quickly. Include them in vendor reviews and mandate that vendors monitor and report on their adherence to these standards.

Improvement- Regular new ideas should be brought to the table by the most strategic vendors. They are knowledgeable about their field and ought to be aware of the state of the companies they do business with. The better vendors will seek for opportunities to enhance a company’s operations through changes in their sector. These factors ought to be in the review as well.

Financials- How successfully vendors assist in controlling expenses in two areas is another factor to consider when choosing vendors. First, does the seller honor the agreed-upon rate in the contract? Second, does the vendor offer fresh suggestions for cutting the cost of the partnership moving forward? Great vendors search for methods to assist in cutting costs through things like alternative products, better use of technology, or better inventory management. Good vendors offer a product or service for the price to which they have agreed. Both should be evaluated.

Align expectations and get greater value from providers by using a vendor review. Keep these things in mind to get the most out of the vendor review process. Contact Strunk at info@strunkaccess.com to see how Vendor Manager can assist with this process.