When you're dealing with finance, risk management is a vital part of the process, ensuring that you and your partners are staying up-to-date with legal changes and regulations. Part of this process includes third-party fintech risk management, ensuring that your vendors and service providers are also in compliance with these regulations. Given that the majority of businesses work with thousands of vendors, suppliers and other tertiary parties, managing the risk that can make the difference between proper security and exposure to a data breach can make or break your business.
But what exactly is third-party risk management, what are the challenges faced by organizations and what can you do to protect yourself against risk while remaining in debt collection compliance and keeping an effective vendor management workflow? In this article, we'll discuss third-party risk management in depth, making it easy for you to make the right decisions for your company's requirements.
What is third-party risk management?
Third-party risk management specifically has to do with an aspect of risk management where your company is vulnerable to potential risk due to your association with an outside vendor, supplier or similar third-party. In this specific instance, we're discussing issues with risk assessment workflows. Given today's advancements and the opportunities for efficiency provided by digital transformation, automated workflows can be a tempting option for growing enterprises to look at to increase the efficiency and accountability of tasks within risk assessment departments.
However, these workflows often intersect with third-party vendors, which can make it difficult to properly assess the risk involved with using that connection. As new vulnerabilities are found in computer software, it becomes easier for cybercriminals to access this information, unless it is properly protected. Unfortunately, without knowing and understanding each line of code in every connected system, it is virtually impossible to stay on top of potential risks from connected third-party systems.
What are the major challenges that organizations face?
Because our world's technological assets are growing so quickly, it can be difficult for fintech companies to stay on top of possible risk while remaining competitive to customers. As other industries go through digital transformation, consumers expect to have the same level of instant access to their financial transactions as they would in any other industry. However, given the level of regulation that falls onto business and consumer finance, it's much more difficult to both meet the demands of customers while keeping data safe from potential breaches.
As an example, a debt collector has a website where consumers can make online payments. These payments then have to be posted through a range of connected third-party systems, including a company that accepts payment, a business that posts the received funds to the original creditor, the debtor's bank and a range of similar parties. At any point along this chain, there is potential for a weakness to be taken advantage of, which can then allow the consumer's information to be seen by unintended parties. Keeping this data safe across these various systems is the biggest challenge faced by fintech enterprises.
What are the risks of using a third-party vendor?
But what can happen with this information? By accessing one portion of your overall system, a prospective cyber criminal can record transaction information, find bank account numbers, set up automatic transfers, steal personal information and a wide range of other possibilities. This in and of itself can prove devastating to your company's good reputation.
However, another risk that is becoming more problematic is the possibility of a cyber criminal using a vulnerability in your system to gain access to further systems. This could eventually allow them to plant ransomware or similar malware into your system, holding your company's data hostage. Imagine what this would do to your regulatory status, as issues such as debt collection compliance are called into question following a data breach or loss due to this type of attack.
Growing risks in the extended enterprise
As fintech companies continue to expand and add new technology and technological partners, third party risk management becomes more important As the enterprise expands and adds more technology to keep up with the new requirements of the expanded business. At the same time, the company expands further, requiring additional technological changes to keep up with the growth.
For this reason, as the enterprise expands, there needs to be additional focus on managing third party risk in the enterprise. However, it can be difficult for your enterprise's IT professionals to stay on top of these possibilities as they continue to expand. For this reason, it may be a good idea to look into your automated workflows, which can incorporate a wide range of third party vendors and create a range of vulnerabilities in your digital assets.
Why are automated workflows important to third-party risk?
Automated workflows move your work into an automatic system, making it easy to make your company much more efficient. However, because of the different vendors, approaches to IT security and programming used within the workflows, the combination of systems can create opportunities for cyber criminals to access the information within your workflows.
For this reason, it's of vital importance for your consumer finance and fintech vendor management workflow to be carefully designed and checked by a risk assessment workflow professional. This helps to ensure that your enterprise can still enjoy the convenience of an outside vendor management workflow while making sure your third party risk management deals work well within a solid debt collection compliance management system.
Better Fintech Workflows
But how can you gain this level of compliance and security with regulations as well as the efficiency of automated workflows? When you work with a company that has experience in fintech risk management, you can ensure that the IT professionals you're engaging know what to look for, which systems tend to be more problematic, which vulnerabilities will need better solutions and what will need to happen to ensure that you get the right systems in place to handle your third party risk management requirements.
To make this happen while retaining efficiency, the IT firm will take the time to make sure that all of your compliance-related tasks fall into a logical sequence to prevent backtracking and duplicated work efforts. Because they have experience working in consumer finance, they have a better understanding than most generalized IT firms of what your workflow probably should look like, the regulatory and compliance issues your business faces on a daily basis, the kind of third party risk management issues you may be facing and related concerns, so you'll get the kind of security you'll need from the very beginning rather than facing potential fallout from a missed vulnerability.
Once the firm has determined your company's exact needs, they can begin developing potential solutions to create a logical, efficient workflow that is automated and minimizes the burdens placed on your employees. Instead of having to work around or in spite of the system, your employees will be able to enjoy an effortless workflow that makes it easier to get their daily tasks done. This, in turn, allows you to take on more clients at a lower cost, improving your profitability and overall growth.
But that's not all that you can gain from a well-designed workflow that takes third party risk management into account. When you work with a company that can create solutions that deliver solid results, you'll be able to maximize the benefits, including moving your timeline for digital transformation forward. Instead of simply having a functional workflow, you can have one that also generates data, showing where you have issues in your process that need to be sorted out, as well as the cost for specific actions and similar metrics. It can also be set up to alleviate your compliance burdens, making it much easier for you to stay in consumer finance and debt collection compliance.
Workflows can do a great deal to make your company operate more efficiently, but only if it takes third party risk management into account as it is being built. A well-designed workflow that includes risk assessment workflow options makes it much easier to remain in compliance and reduce the risk of a potential data breach due to a vendor, supplier or other third party having a vulnerability within their system.
Benefits of secure workflows
Reduce time spent on vendor management and increase time
You could continue to spend a lot of extra time on third-party risk management by micromanaging your vendors and making sure they're in compliance with regulations, but unfortunately, that takes a lot of time and effort to remain competitive in today's digital world. By having a secure risk assessment workflow created for your company, you can much more easily manage any vendor issues that may arise while reducing the amount of time you need to spend overseeing them.
At the same time, you can use the additional time you've gained to catch up and keep up with your list of tasks for analyzing risk. This allows you to take proactive approaches to risk management within your company rather than constantly having to catch up on your tasks. Imagine being able to implement processes and programs that provide solid benefit and growth instead of having to chase after issues that are about to go sideways for your business. How much more growth and progress could your company make given a solid, secure workflow for risk management?
Third party risk management is a task-intensive/task-heavy process
The process of third-party risk management is both a task-intensive and -heavy process. The lifecycle of the overall process include the following:
- Identifying third parties, vendors and suppliers
- Establishing contracts and supply chain
- Exchanging to and from the third-party or vendor for risk assessments
- Performing in-depth risk assessments and reviews
- Undertaking risk mitigation including developing controls and response plans
- Maintaining regular reporting and record keeping
- Continued risk assessment and performance monitoring
Each of these stages may have their own separate processes, including contract evaluation and markup, setting up logistics for the supply chain, working with outside companies to perform risk assessments, writing up procedures for controlling risk, creating response plans in case of a breach, creating required regulatory reports, checking analytics to determine the performance of a system and similar aspects. To reduce this workload, a secure vendor risk management workflow can be a big benefit.
Fosters successful inter-departmental collaboration
We've all had it happen. The email conversations where nothing seems to ever be sorted out. The continuous back and forth over what should be a relatively simple matter. A manager refuses to change how a department is handling a specific issue. Another department doesn't see the importance or point of doing things differently than they've been doing for years, so you get mixed results as some people follow the new procedure and others don't. Inter-department collaboration can be difficult in many circumstances.
However, having a secure risk management workflow in place can drastically reduce the friction that can occur between departments by keeping everything running smoothly. Information is automatically transferred between departments without creating additional work. Details will be required to be filled in or a form won't be allowed to be saved into a database. There are a range of techniques that make it easier to keep everyone on the same page by automatically sharing information without risking losing that information to an outside source.
Alleviates human error
It's much easier to miss a step in the procedures that you have in place due to human error than it is in a digital workflow. Human error makes it easy to have a large margin of error when steps are missed, forgotten or misunderstood in the process. This is why that big contract didn't finish getting through your legal department until it was too late to salvage, the major client wasn't called back in a timely manner or any number of similar situations that happen in business on a daily basis.
An automated third-party risk management workflow doesn't make these kinds of errors. When the contract doesn't come back from legal in a timely manner, an exception is created that reminds legal to finish their analysis and get the contract back in the right hands. The important phone call to a regulatory agency is followed up on in the workflow, or a manager will hear about it to make sure it's handled. The poor security on a vital system can be followed up on to make sure that changes have been made. With an automated workflow, it's not possible to drop the ball, provided that it's set up properly in the first place.
Helps insure critical and high risk information makes it to the right people
Regulatory agencies and governing bodies require approval and passing specific checkpoints for a company to remain in business. If this information is not passed on in a timely manner, it can put your entire company at risk, whether it's the suspension of a business license, revocation of certifications and similar issues. In a traditional workflow, it's very easy for that critical or high-risk information to get lost in the shuffle, causing serious problems.
When you work with an automated workflow, the information can be automatically shuttled to be sent to the appropriate parties, whether that's making sure that clients receive statements that are confidential and protected, regulatory agencies get the documentation that they need so that you stay in compliance or any number of similar problems. Once the information is collected, a task can be assigned to the correct person to review and send these vital documents, protecting your company's bottom line.
By having everything handled in the same fashion in your business, you're also able to quickly see if anything is out of line. If you've suddenly had someone unauthorized try to access your payment files, it's much easier to catch in an automated system as compared to someone “accidentally” opening the wrong filing cabinet. If orders suddenly aren't coming through from a specific station, demographic or server, it's much easier to track down the problem through your workflow than physically track it down in the real world.
A customized third-party risk management workflow also makes sure that vendors that have products used in or have access to that workflow are meeting specific standards to avoid unintentional risk to your business. Instead of the vendor's vulnerability becoming your own, you'll have a customized workflow using components and software that have been carefully checked to ensure they'll work together very well and without putting your company at risk.
Scaling growth of a successful program
Of course, with the rapid pace of today's world, one of the biggest concerns in third-party risk management workflow solutions is scalability. The day of the internet sensation is at hand, when a small company may suddenly find itself in the limelight and struggling to quickly scale up its infrastructure to deal with a range of new clients, orders or inquiries than it was prepared for. Being able to quickly scale your operation to match growth is a vital concern for virtually every fintech company today.
When you work with a company that develops your workflow solutions, don't underestimate the value of the documentation they provide. With information about what went into the system to begin with, it's much easier to scale your successful program as compared to having to start entirely from scratch, with very little information available on how to reproduce the successful system. By working with a company that provides documentation or keeps scalability in mind when developing your workflow, it's much easier to reproduce those results.
What should you look for in a third-party risk management workflow solution?
When you need a third-party risk management workflow solution, what should you look for? Because this is an issue that has arisen time and again, the easiest way to determine what to look for is by looking at industry best practices. These include:
- Include third-party vendors in your data map. By having a clear view of what kind of customer information your vendors can see, you can more easily dictate how they use that information and create clear expectations of the right compliance information from them in return.
- Have a framework and process for risk assessment. It's tempting to simply assess each vendor as it comes in, but that doesn't give you a consistent process to base your judgment on. Start with a framework to assess each vendor for risk, then treat every vendor the same.
- Use industry standards. A number of established enterprises, such as Adobe, have not only developed their own third party risk management assessment but also publish what those assessments entail. You can also use standards such as ISO 27001, SOC 2, NIST 800-171, CIS Critical Security Controls and similar programs.
- Create a specific vendor onboarding and offboarding procedure. Much like your HR department's process for onboarding and offboarding employees, set up a specific process to put vendors through when bringing them on board or letting them go. Part of this ensures the vendor complies with your information security policies.
- Look at security ratings. Using websites such as Bitsight, take the time to look over your vendor's security ratings. However, don't just look once and be done with it. Take the time to regularly review your vendors' security ratings to make sure nothing has changed recently.
- Don't wait for perfection, but constantly review and improve. Like many things in business, it can be tempting to try to develop the perfect framework, procedure or system, but that will never happen. Instead, start with what you have and go through a regular process of reviewing and improving the systems you already have in place.
- Establish solid contractual standards. You can start with a general contract template for third-party vendors, but understand that you need to communicate so both parties understand their responsibilities before the contract starts. It should include how things will be negotiated, what the approval process is for contract changes and how data is stored and approved.
If you're ready to take the next step in developing a quality third-party risk management workflow for your company, NeuAnalytics can help. As one of our specialties, we have extensive experience working with consumer finance and fintech companies, helping them create solid, secure solutions for their enterprise. Please feel free to contact us today with any questions, for more details or to request a demo of what we can do to take your enterprise to the next level.