The contemporary banking environment requires financial institutions to have relationships with many different third-party vendors. You may contract with vendors who provide software, process payments, monitor transactions, or handle countless other tasks.
Your relationships with these parties can increase your fraud risk if not handly carefully. Utilize these tips to protect yourself.
1. Perform due diligence on your vendors
Before embarking on a relationship with a third party, perform some due diligence. Make sure they are legitimate, but also analyze their security efforts. If they are going to be dealing with your sensitive customer data, you need to ensure they proactively keep the data safe.
If possible, audit their security protocols on a regular basis. This allows you to identify new risks and vulnerabilities.
2. Learn about your vendors’ continuity plans.
Despite diligent efforts, cyber breaches can still happen. You should understand how your vendors plan to respond to breaches. How will they notify you? What steps will they take to rectify the situation? Do they have a plan to notify the people who were affected?
A data breach can significantly harm your reputation. Even if the fault ultimately lies with one of your vendors, the public will blame your financial institution. Remember, your customers trust you with their personal details and their assets. They expect to be protected, and you cannot allow a third party to make them vulnerable.
You need to ensure that your vendor’s continuity plans meet your expectations. Ideally, these plans should be set up in a way that minimizes the monetary and reputational damage as much as possible.
3. Work with vendors to minimize their risks
If you detect that a vendor poses a heightened cyber security risk, consider working with them to minimize their risk. Rank vendors based on their level of risk, and reach out to those that are the most likely to pose a threat to your financial institution.
4. Monitor vendors to ensure regulatory compliance
In the financial services industry, you must be compliant with a vast range of regulations, and many compliance requirements may also extend to your vendors.
Whether you’re dealing with a company that develops your app, works on your website, or cleans your offices, ensure that you draft up contracts that outline the regulatory guidelines they must abide by, and monitor your vendors as closely as possible to ensure they meet the relevant rules.
5. Be clear about your expectations
When drawing up contracts, spell out your requirements for each of your third-party vendors. Even if a vendor regularly services financial institutions, they may not always understand the regulatory guidelines.
If your bank goes above and beyond in its cybersecurity measures, you also need to let your vendors know about your heightened expectations.
Be clear and transparent about what you expect. Then, explain the repercussions of not meeting your expectations. In particular, make sure that you can terminate relationships with vendors who are not up to par. You don’t want to be stuck in a service agreement with a vendor who poses a potential risk to your organization.
6. Limit access to bank accounts and records as much as possible
Depending on the functions your third-party vendors are performing, they may need to access your customers’ accounts, your financial records, or other sensitive information. Limit access as much as possible.
Try to have some level of awareness of the number of people who are accessing sensitive information or bank accounts from each vendor. Make sure you understand your vendor’s vetting process for employees.
7. Utilize real-time fraud prevention and detection solutions
If someone from a third-party vendor has the ability to access accounts, they can commit fraud. Make sure you have solutions in place that analyze all activity related to your bank accounts in real-time. When you scan accounts for fraudulent behavior on a continuous basis, you reduce the risk of fraud, and you increase your ability to detect potential fraud before it occurs.
8. Be aware of the risk of subcontractors
Even if you monitor your third-party relationships closely, you risk facing threats from your contractors’ subcontractors. Find out as much as you can about vendors on all tiers.
Also, consider requiring your third-party vendors to certify that they perform adequate due diligence about their subcontractors’ cyber security efforts, commitment to regulatory compliance, employee screening process, and other potential risk reduction factors.
9. Prioritize third-party risk management
Third-party risk wasn’t a significant issue for banks in the past, but as financial institutions forge relationships with a historic number of vendors, it’s becoming a much more significant risk.
Make sure to prioritize protecting yourself from this risk. If a third-party vendor commits fraud or allows a cyber breach to happen, they pose financial, reputational, and operational risks to your financial institution. And depending on the situation, they may even pose a legal or regulatory risk.
Contact SQN Banking Systems
At SQN Banking Systems, we offer a variety of fraud detection and prevention tools and solutions for financial institutions. We can help you scan every transaction in real-time to look for potential red flags of fraud. Our solutions are designed to help you preemptively spot fraud so you can minimize losses and safeguard your reputation.
When you run a financial institution, you put a lot of trust in your employees and your third-party service providers. But trust alone is not enough. You also need to ensure that you are actively monitoring these people and their interactions with your financial institution.
To learn more about fraud detection and prevention, contact us at SQN Banking Systems today.