The vendor risk landscape is rapidly evolving, and fostering third-party partnerships can expose organizations to any one of the following risks:

    • Operational
    • Financial
    • Political
    • Strategic
    • Reputational

The reality is that third-party due diligence has become one of the top priorities for organizations operating in all parts of the world.

Many organizations are not employing best practices when it comes to due diligence, missing key opportunities to maximize the value of their risk management strategies.

The Future of Third-party Due Diligence

Third-party due diligence is being affected by the following three trends:

  1. As governments and businesses become more concerned over corruption and bribery in foreign markets, anti-corruption legislation is becoming tighter and more stringent, creating a greater need for third-party due diligence.
  2. Organizations are increasingly being held responsible for conducting due diligence to ensure not only that they are operating within the law, but also that the businesses with whom they choose to work are.
  3. Businesses are developing a larger number of partnerships with third parties to outsource critical processes and operations, enabling them to grow at scale while still providing top-quality products and services to customers.

As these trends continue to accelerate, so too does the rate of risk exposure, making proper third-party due diligence of critical importance for success in the modern business environment.

Improving Third-party Due Diligence: Best Practices

The following best practices serve as a guide to help you optimize your third-party due diligence processes.

Conduct Ongoing Monitoring

It is critical that you have ongoing third-party risk management procedures in place to constantly assess all possible risk factors and maintain due diligence across time. You can implement ongoing monitoring by requesting and reviewing service provider audit documents, including SOC1 and SOC2; requesting yearly compliance certifications; routinely assessing internal processes; and ensuring ongoing communication of expectations and performance.

Train Staff on Best Practices

Successful implementation of due diligence processes requires that all senior management, junior staff and even the third parties themselves receive adequate training and information about your risk mitigation standards. Internal staff should receive periodic training on the latest changes and updates to your processes in a way that is specific to their job responsibilities so they can most effectively identify any potential breaches.

Update Processes Regularly

The business practices of third-party vendors constantly undergo change, and so do your business goals and responsibilities. As your business evolves, different external factors pose varying levels of risk to your organization. It is important that you constantly reevaluate your third-party due diligence protocols to ensure they are properly meeting your goals as a business and protecting your organization from the most severe risks you face.

Identify the Right CSOCs

Many of your third-party vendors are likely outsourcing their own critical functions to fourth-party subservice organizations (SSOs), exposing your sensitive data to a substantial degree of risk. That risk is heightened by the fact that many of those fourth parties are entities you do not have direct relationships with. It is important to understand the functions that have been delegated to the SSO in addition to the Complementary Subservice Organization Controls (CSOCs) their service provider expects them to have in place. This helps you have more informed conversations with your service provider about due diligence efforts.

Map CUECs Against Organizational Needs

Complementary User Entity Controls (CUECs) are used by service providers to ensure user entities have the right protocols in place to meet all of their control objectives. It is important for the firm to closely examine the service provider’s list of recommended user controls and map them against their business to determine which specific controls are relevant to their organization. From there, they can develop specific guidelines for what they will do in response to those CUECs so that they feel comfortable with how the controls will function.

The Role of Technology in Third-Party Due Diligence

Deploying the most advanced technology across your business is one of the most effective ways to enhance third-party due diligence. Technology enables your organization to:

    • Automate your processes: Leveraging automation software to streamline critical due diligence processes — including workflows, reporting, surveys, questionnaires and research — eliminates unnecessary inefficiencies and frees your internal teams to focus on more involved tasks.
    • Consolidate risk information: Capture risk information from multiple sources and centralize it in a single location using advanced management software. This enables your internal teams to exert high-level oversight over your entire risk landscape, helping them better identify and respond to risks as they arise.
    • Empower your internal teams: Technology should not completely replace the role of human personnel in the third-party due diligence process. Good technology eliminates unnecessary manual processes, but the real value is that it gives your teams more time and resources to analyze vendor risk data and devise appropriate remedial strategies.

Technology makes your organization leaner and more agile while enhancing third-party oversight.

Business Benefits of Third-party Due Diligence

    • Prevent reputational damage: Trust is essential to maintaining good customer relationships in the data-centric digital economy, and an organization’s entire reputation ultimately depends on the degree to which its customers trust it to protect their data. Proper third-party due diligence demonstrates to customers that organizations are working with reputable partners, safeguarding personal data, and maintaining high standards of integrity.
    • Strengthen business relationships: Outsourcing is essential for businesses that want to create agility and drive success in the modern business landscape, meaning they need to be able to trust their third-party partners to undertake good business practices. Third-party due diligence ensures business relationships are defined by mutual trust and reciprocity, helping organizations drive long-term profitability.
    • Ensure compliance: Organizations must adhere to numerous state and federal regulations aimed at mitigating risk. Failing to conduct proper due diligence could lead to extremely expensive noncompliance fines — and possibly prosecution. Third-party due diligence keeps organizations in compliance with all necessary regulations to avoid costly legal problems that could have long-term consequences.
    • Promote data security: Cybersecurity events are on the rise, and organizations are increasingly making cybersecurity a top business priority. Failing to conduct proper third-party due diligence could leave vulnerabilities overlooked. This would unnecessarily expose your sensitive data stores to attack, leading to severe security breaches that could cost your organization enormous sums of money to repair.

Partnering with Delta Data

The above information helps you enhance your third-party due diligence, enabling you to capture the broadest range of benefits from conducting proper risk assessment to taking the right steps to mitigate risk.

It does not end there. Completing proper third-party due diligence requires having the right team of experts on your side.

Delta Data provides top financial services companies with key insights into the service quality, compliance and efficiency of their business partners. Delta Data assists with optimizing third-party due diligence and powering:

    • Greater operational efficiency
    • Stronger customer relationships
    • Enhanced quality performance
    • Competitive advantage

Contact the team at Delta Data to learn more.