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The risk a business faces when it relies on an outside supplier, service provider or partner.
Risk management extends beyond choosing a provider. It includes understanding the service, checking the provider’s ability to deliver, agreeing responsibilities, monitoring performance and planning an exit. A bank may need to recover data or continue essential services if its provider fails. The level of scrutiny should reflect the importance and complexity of the relationship.
Suppose a bank hires a company to operate its payment platform. The company suffers an outage and customers cannot transfer money for several hours. The bank did not own the faulty server, but its service is still interrupted. A backup arrangement, tested recovery process and clear contract can reduce the impact; merely describing the provider as reputable does not resolve the dependency.
U.S. agencies propose tailored guidance on banks’ outside providers