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FIs' vendor relationships come under closer scrutiny

July 24, 2013 by Jim Ghiglieri — Senior Vice President, Corporate Communications, SHAZAM

Regulators are keeping a closer eye on how financial institutions handle vendor management. FIs of all sizes can experience problems with regard to vendor management, so it is important to have an ongoing focus on due diligence with partners.

Recently, the Consumer Financial Protection Bureau took three enforcement actions that resulted in a combined $101.5 million in fines plus $435 million in restitution. Each fine was waged as a result of the FI incorrectly monitoring vendors.

Managing vendor relationships is a daily activity for FIs who do it successfully. These community FIs practice regular, consistent monitoring, greater upfront due diligence, and increased checks and balances.

Many FIs also take advantage of resources such as our comprehensive vendor management library that offers online access to everything from SSAE 16 audit and annual reports to summaries of information security and business continuity programs.

It's essential for FIs to follow-up with vendors regarding any issues that audits bring to light. FIs should also consider formulizing workflow, requiring all actions to be formally approved before the next steps are taken; and look into whether vendors are using third-party data centers.

This step may require an FI's vendor contract to include requests to view vendors' contracts with other vendors when the data is hosted elsewhere.

With careful monitoring and ongoing oversight, an FI can protect itself from having to pay (literally) for a vendor's faults or mistakes. Choosing to work with trusted, long-time, established companies can also put an FI in the driver's seat regarding vendor management.

Read more about regulatory issues.

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