Third-Party Risk in Banking: Why It’s a Regulatory Hotspot
You can outsource the function. But you can’t outsource the risk.
That’s the cold truth behind third-party relationships in banking. And the OCC knows it.
As banks grow—especially those approaching or passing the $50 billion asset threshold—regulators sharpen their focus on vendors. Not just who they are, but what they access. How they handle your data. Whether they meet your security and compliance standards.
It’s not just about what your vendors do. It’s about how well you manage them.
Audits Cover More than Firewalls
OCC audits don’t stop at your firewalls. They reach into your vendor contracts, access policies, oversight processes, and incident response plans. If a vendor causes a breach, disrupts service, or mishandles customer data, the regulators won’t blame the vendor. They’ll blame you.
That’s because under OCC guidelines, third-party risk is your responsibility. Period.
They’ll ask:
- Do you know who has access to what data?
- Do you conduct regular vendor assessments?
- Are your contracts enforceable and up to date?
- What’s your plan if a critical vendor goes offline or gets breached?
If you can’t answer confidently, you’ve got a problem.
Blind Spots That Get Banks in Trouble
Most banks have third-party risk programs on paper. Policies, templates, checklists.
But here’s where they fall short:
- No centralized view of vendor relationships
Different departments onboard vendors independently. IT doesn’t know what Legal’s doing. Ops has no clue what Marketing signed. It’s chaos in slow motion. - Access creep
Vendors get access to systems for one project… and keep it forever. No one monitors it. No one revokes it. - No regular reassessments
Risk isn’t static. A vendor that was low-risk three years ago might be high-risk now. Especially if your business—or theirs—has changed. - Lack of contract enforcement
Contracts often lack clear service-level expectations, breach notification clauses, or audit rights. Or worse—they’re signed and forgotten. - Vendor risk lives in a spreadsheet
If your risk monitoring process is still spreadsheet-driven, you’re already behind.
These aren’t just inefficiencies. They’re audit findings waiting to happen.
How to Fix It Without Burning Out Your Team
Your internal team is already stretched. Asking them to add rigorous vendor governance on top of everything else isn’t realistic.
So how do you get ahead of third-party risk without burying your staff?
Start with strategy. Not spreadsheets.
Here’s what works:
- Map your vendor ecosystem.
Know who your vendors are, what they access, and how critical they are to operations. Don’t just track cost—track risk exposure. - Tier your vendors.
Not every vendor needs the same level of oversight. Focus on the high-risk, high-impact ones. Think cloud providers, core processors, customer data handlers. - Automate what you can.
Use risk management tools that send assessments, track responses, flag red flags, and centralize documents. Don’t manage this through email threads. - Build standard onboarding and offboarding workflows.
Every vendor should go through the same gatekeeping process. And when they’re done, their access should disappear. - Assign ownership.
Someone—not everyone—should be accountable for third-party risk. Without a single point of responsibility, things slip.
Compliance and Confidence Go Hand in Hand
Strong vendor risk management isn’t just a regulatory checkbox. It’s protection.
Your customers don’t care whether it was you or your vendor who caused a data breach. They care that it happened. And they’ll walk.
That’s why banks that build mature third-party risk programs gain more than audit readiness. They gain resilience. Trust. And faster response times when something does go wrong.
Because it will.
Get Proactive—Not Reactive
Waiting for the OCC to tell you what’s broken is a losing strategy. By the time a Matter Requiring Attention (MRA) shows up, you’re already on your heels.
Proactivity isn’t about perfection—it’s about preparedness.
That starts with visibility. You need a clear picture of every third-party relationship: who they are, what data they touch, which systems they access, and how critical they are to day-to-day operations. Too often, banks discover these answers during an audit. That’s too late.
Next comes prioritization. Not all vendors are equal. A SaaS tool used by the HR team shouldn’t be managed the same way as a cloud provider hosting customer PII. Build a vendor risk framework that tiers vendors based on risk and criticality. Then apply controls that match the exposure.
Finally, act on what you find. Review contracts. Document access. Refresh assessments. And close the loop with clear remediation plans.
Proactive doesn’t mean perfect. It means intentional. It means controlled. And most of all, it means ready.
The Role of Outside Support
Most mid-market banks aren’t built for this. Not yet.
They don’t have dedicated vendor risk teams. They’re using spreadsheets. Or worse—managing vendor risk by email. And even if they know what needs to be done, they simply don’t have the capacity to do it.
This is where outside support becomes critical.
Not to take over, but to accelerate.
A qualified partner can bring structured frameworks, automation tools, and regulatory expertise to the table—fast. They’ve seen the playbook. They know what the OCC is looking for. And they can help you build a program that stands up to scrutiny without burning out your team.
More importantly, the right partner doesn’t just fix your current gaps—they build muscle inside your organization. They equip your staff with repeatable processes, templates, and training that turn one-off compliance efforts into long-term capability.
This isn’t about hiring a contractor. It’s about gaining leverage.
Because in regulated environments, speed and certainty matter. And trying to piece it all together yourself just isn’t fast enough.
Final Thoughts
Third-party risk isn’t a checkbox. It’s not a one-time initiative. It’s a living, evolving threat vector that grows with every new vendor, every system integration, every access point.
And it’s not going away.
The OCC knows that the weakest link in a bank’s security posture often sits outside the building. That’s why third-party risk is one of the most scrutinized areas during audits—and why it’s one of the easiest ways for banks to get tripped up.
But this isn’t just about avoiding fines.
It’s about protecting your customers, your reputation, and your ability to move fast without putting everything at risk.
The banks that thrive under heightened standards are the ones that treat third-party governance as a strategic priority—not a regulatory obligation.
So ask yourself:
Are you confident in your vendor risk posture?
Or are you just hoping it holds up?
Hope isn’t a strategy.
Get the visibility. Get the structure. Get ahead.
