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Third-Party Risk Management Software for Financial Institutions

Third-Party Risk Management Software for Financial Institutions

Third-party risk management (TPRM) is a major consideration for financial institutions such as banks and lenders and the reason is clear: criminals view these businesses as a prime target with a sizable potential payout. Financial institutions are at the top of the list when it comes to “targetability” by criminals; this makes a well-developed risk management strategy absolutely essential.

Third-party risk management is a key component of a broader strategic approach to minimizing and mitigating risk. Breaking into a bank or robbing a bank at gunpoint — those methods are high-risk and the theft is detected immediately or in very short order. But a more stealthy theft can be achieved from the “inside” and unsavory characters may seek to get behind the curtain, so to speak, as a third-party contractor or vendor. Enter: a well-developed TPRM strategy that is backed with a third-party risk management software system. In fact, there are some TPRM software systems that are designed specifically for financial institutions. But what features and functionalities will you find in these risk management software platforms?

What Features Will You Find in Third-Party Risk Management Software for Financial Institutions?

As you seek out a TPRM software platform for a bank or other financial institution, there are a few features that you can expect to encounter. Here is an overview of the must-have functionalities and features in a risk management software solution that’s suitable for a financial institution’s TPRM needs.

Assessment Questionnaires – Assessment questionnaires are a key component of a third-party risk management software system. The best platforms — and the platforms that ought to be used by financial institutions — include artificial intelligence (AI) and machine learning (ML) capabilities that are used to identify suspicious responses. These AI-powered questionnaire evaluations can be extremely effective in identifying potentially problematic individuals and the machine learning component means that this technology becomes more and more effective over time.

Vendor Databases – The best TPRM software will include a vendor database with listings for companies and individuals who commonly work with businesses in the financial sector. These databases can be critical for identifying and spreading the word about third-parties and companies that ought to be avoided. Ideally, you should have access to a whitelist and a blacklist, with the latter being the more important of the two. The larger and more comprehensive the database, the better.

Compliant TPRM Platforms – The financial sector is subject to stringent regulatory oversight that must be taken into consideration. TPRM software designed specifically for the financial sector typically takes this into consideration, providing a platform that is compliant with all rules and regulations impacting banks, lenders, and financial institutions. Data management is a parallel consideration. In order to use TPRM software, you must collect personal data. This data is subject to strict regulatory oversight under multiple regulations, such as the California Consumer Protection Act (CCPA) and the EU’s General Data Protection Regulation (GDPR). Therefore, your chosen platform will need to be compliant with these regulations so as to avoid any fines or penalties.

Background Checks – Background check tools are absolutely essential for a TPRM software system, especially one that is going to be used by a financial institution. A platform may have its own in-built tool or it may feature an integration with a third-party background check tool. Whatever the case, background check tools are critical. Financial institutions should opt for continual monitoring whenever that option is available since risk level can change over time.

Credit Checks – Ideally, your TPRM software should include the capability to run credit checks on a vendor, contractor or other third-party who is working with your financial institution. This tool may also be useful to the increasing number of employers who are performing credit checks on prospective hires as part of the evaluation process. The thinking behind this is that someone with a poor credit score may be more likely to commit a theft or other financial crime.

Continued Risk Assessment – Background checks, credit checks, and questionnaire responses may be accurate when performed today, but things can change over time. Behavior can change too. This means that a third party’s risk level holds the potential to evolve. A good third-party risk management software system will include some form of automated monitoring capabilities. This can include monitoring for criminal convictions, major changes in credit score, and periodic assessment questionnaires. The best systems are AI-powered, leveraging this rapidly-advancing technology to identify a change in risk level.

Reputation Checks – The best third-party risk management software for a financial institution will include a feature — ideally powered by AI — that provides insight into a company’s or individual’s reputation. This is useful for vendors and contractors that a bank or other financial sector company may choose to hire. An individual may have a good background check, but if you discover that their company has a questionable reputation, it may be prudent to take your business elsewhere in an attempt to mitigate risk. These reputation checker tools can also be used for an individual. These reputation checker tools consider a number of factors during the evaluation process, including ratings and reviews on reputable platforms, along with negative sentiments written on social media and websites. A combination of factors are taken into consideration and weighted according to a specific formula. AI technology is often integrated with the reputation checker algorithm, allowing for greater accuracy.

Metrics and Analytics Dashboard – Virtually all TPRM software platforms include analytics and metrics, but business leaders rarely have the time to dig through charts, graphs, and reports. Pick a software system that displays key analytics and data in dashboard format, delivering critical information at a glance.

Choosing the Right TPRM Software for Financial Institutions

Finding the best third-party risk management software for financial institutions can be a challenge. There are numerous platforms designed specifically for companies in the financial sector, although they are not always the best fit for a specific company. This underscores the need to explore all of your options, including non-industry-specific TPRM software platforms.

At iTech, our expert team of risk management and compliance specialists will provide cost-effective TPRM solutions to clients in the financial sector and beyond. Contact iTech today to discuss your company’s third-party risk management strategy and we’ll work with you to find the best risk management solutions.