Financial-services firms have encountered a multitude of unprecedented challenges in recent years, ranging from cyberattacks to geopolitical instability. These crises have not only impacted the firms themselves, but also their third parties and suppliers. The growing reliance on third parties has led to rapid innovation and digitization within the sector, while also exposing these firms to a new spectrum of risks. Recognizing the critical nature of these developments, regulatory bodies have responded with proactive measures.
One prime example of such measures is the Digital Operational Resilience Act (DORA) in the European Union (EU). Scheduled for implementation in January 2025, DORA aims to unify and enhance ICT risk requirements, establishing a standard for mitigating risks associated with digital operations. The regulation also places emphasis on oversight of critical third-party providers, such as cloud-service providers, extending regulatory vigilance beyond financial institutions to include vital third parties. This reflects an understanding that the security and stability of financial-services firms are linked to the reliability and resiliency of their third parties.
A reactive approach to risk management is no longer sufficient in today’s complex risk environment. Continuous monitoring of risk landscapes and third parties’ performances is crucial. It is not adequate to rely solely on due-diligence questionnaires; governance structures, technologies, and third parties’ resilience are continually evolving. Therefore, establishing key risk indicators for continuous surveillance and active engagements with third parties are essential.
A comprehensive Third-Party Risk Management (TPRM) strategy is indispensable for strengthening resilience. An effective TPRM program offers a panoramic view of the firm’s entire supply chain, identifying potential weaknesses and vulnerabilities. This proactive approach allows for agility and responsiveness in times of crisis, providing a significant competitive advantage and maintaining trust with customers and stakeholders.
No financial-services firm is immune to the impacts of third-party risks. This underscores the necessity to integrate TPRM into broader business-continuity and operational-resilience frameworks. Clear communication channels and fostering a culture of risk awareness at all levels of the firm are crucial for this integration. Leveraging AI in TPRM has become essential, allowing firms to detect risks within their supply chains rapidly and demonstrating preparedness to key stakeholders.
Effective risk management is about identifying risks and setting clear pathways for remediation. Developing a robust TPRM program is an ongoing strategy that must evolve with the firm, its vendors, and the ever-changing risk landscape. TPRM has become a critical component of regulatory compliance and should be a central element of strategic operations, consistently reinforced by organizational leadership and embraced by employees at every level.
In conclusion, with a continuous approach to third-party risk monitoring and leveraging real-time data, firms can ensure compliance, sustain growth, and maintain resilience amidst the ever-evolving threat landscape.
Richard Cooper spearheads Fusion’s business strategy for the global financial market. His expertise lies in delivering thought leadership, market intelligence, and best-practice insights, guiding firms through innovation and transformation.
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