Engaging third-party and fintech companies is essential to innovation for financial institutions, but they also introduce heightened risk.
In our last post, we examined how aligning cybersecurity with strategic planning provides resilience in budgets and priorities. One of the most critical areas to factor into those plans is vendor oversight.
Engaging third-party and fintech companies is essential to innovation for community financial institutions, but they also introduce heightened risk. As these contracted services expand, regulatory scrutiny is keeping pace.
Cybersecurity Awareness Month is an ideal time for financial institutions to revisit vendor due diligence programs and confirm they are keeping up with today’s evolving threat landscape.
Why vendor risk is front and center for financial institutions
Many high-profile breaches trace back to a compromised vendor. Regulators have made it clear: outsourcing services doesn’t mean outsourcing accountability. Institutions remain responsible for monitoring the cybersecurity posture of every provider whether it’s a core processor, cloud platform, or niche fintech partner. Inadequate oversight not only invites regulatory findings but can also cause lasting reputational damage.
Practical steps to strengthen third-party vendor oversight
- Classify vendors by criticality — Prioritize those with direct access to systems, networks, or sensitive customer information.
- Expand due diligence — Move beyond SOC reports to evaluate recovery capabilities, resilience measures, and overall security culture.
- Formalize ongoing monitoring — Require contractual notification of incidents, conduct periodic reviews, and avoid one-time-only assessments.
- Engage your board — Keep leadership informed about top vendor risks and mitigation strategies for accountability.
What effective third-party vendor oversight looks like in financial services
Robust risk management programs document vendor risk ratings, apply standardized review processes, and maintain a clear audit trail for regulators. Mature oversight practices give boards confidence third-party risk is managed consistently, not reactively.
How CLA can help financial institutions with cybersecurity
Fintech and vendor partnerships will continue to drive growth and competitiveness. But with opportunity comes responsibility. By elevating vendor risk management as part of broader cybersecurity strategy, institutions can confidently innovate while safeguarding their communities.
CLA works with community financial institutions to design vendor oversight programs balancing innovation with compliance. We provide tools, assessments, and frameworks to strengthen monitoring and prepare institutions for examiner expectations.
With the right approach, vendor risk management becomes a strategic enabler rather than a compliance burden. In the final post of this series, we’ll examine how employee training and awareness programs can transform staff from potential vulnerabilities into your first line of defense.