While financial institutions enjoy many benefits from cooperating with third-party service providers, this cooperation also raises significant concerns regarding the security of the data and resources these vendors have access to.
In this article, we discuss why financial institutions hire independent contractors and what cybersecurity risks this cooperation entails. We also explore how building a third-party vendor risk management program can help you mitigate these risks.
Key takeaways:
- Financial institutions benefit from outsourcing to third parties, which can introduce serious cybersecurity, compliance, and operational risks.
- Nearly half of all data breaches in 2024 involved third-party access. Banks are prime targets, with 23% of all cybersecurity incidents affecting the finance and insurance sector.
- Effective management of cybersecurity risks in banking includes developing a robust third-party risk management program and deploying vendor risk management tools for banks.
Why must financial institutions manage third-party risks?
Banks and financial institutions outsource all kinds of operational activities, from accounting and appraisals to marketing and even loan servicing. Working with independent subcontractors brings multiple benefits:
4 reasons why banks work with third parties
Flexible team scaling
Hiring external experts allows financial entities to easily expand or adapt teams, avoiding lengthy hiring cycles and enabling faster responses to changing business needs.
By working with third parties, banks can minimize expenses tied to recruiting, onboarding, and maintaining full-time staff, while potentially lowering tax and infrastructure overhead.
Increased operational efficiency
Delegating tasks to third-party vendors allows financial institutions to work more efficiently: they can process more transactions, serve more customers, and improve services without overloading internal teams.
Banks can accelerate the deployment of innovative tools and systems by relying on third-party expertise for selection, testing, and integration, thus reducing internal burden and risk.
Despite all these advantages, many banking organizations are wary of hiring independent contractors, mostly because of the security and compliance issues this cooperation entails.
Cybersecurity risks for financial entities
Your ally may easily become a threat.
According to the X-Force 2025 Threat Intelligence Index by IBM Security, the finance and insurance industry is the second most attacked industry, accounting for 23% and 26% of all 2024 cybersecurity incidents, respectively.
These numbers reflect the sector’s susceptibility to data breaches, considering that banks often have to grant third parties access to sensitive data, critical systems, and other important resources.
Cooperation with subcontractors carries no guarantee that a third-party vendor won’t misuse their access privileges. Additionally, hackers initiating supply chain attacks may target your subcontractors to gain access to your sensitive data and critical systems.
It’s crucial to remember that, though you may delegate some tasks and functions to a third party, ensuring your organization’s cybersecurity is still your responsibility. Neglecting this responsibility can lead to devastating consequences.
6 key risks third-party vendors pose to financial entities
Data leaks. Financial institutions rely heavily on information as a core asset, but cybercriminals and negligent employees can undermine its integrity.
Financial losses. Data breaches can often lead to regulatory penalties or lawsuits. Additionally, affected banks must conduct security audits, digital forensic investigations, and cybersecurity remediations, which require substantial financial investments.
Reputational damage. Third-party-related security incidents may harm a bank’s reputation and lead to a loss of customer trust.
Compliance issues. Third-party cyber risk management is also one of the key requirements of financial data security regulations, laws, and standards, including OCC bulletins, GLBA, PCI DSS, NIST, etc. Failure to comply can result in lawsuits, fines, and penalties.
Operational disruptions. Cybersecurity incidents caused by third-party vendors may seriously disrupt your company’s operations and affect network and service availability.
Fourth-party risks. Your third-party vendors may be used to working with third parties of their own. Without clear contractual clauses limiting such activity, your subcontractors may re-outsource critical tasks to so-called fourth parties, creating compliance gaps and blind spots in oversight.
Next, we’ll examine what unsecured cooperation with third parties can lead to in practice.
Examples of cybersecurity incidents caused by vendor access in banks and financial institutions
To understand what’s at stake, let’s now analyze two infamous data breaches in which financial institutions were compromised through their cooperation with third-party service providers and vendors.
Incident #1. Third-party software vulnerability exploit
Zero-day exploit in third-party secure file transfer software
- Personally identifiable information of 22,000 customers leaked
- 46-day delay in public disclosure after discovery of the incident
- Potential reputational damage due to the risk of identity theft and financial fraud for affected customers
On January 27, 2025, Western Alliance Bank discovered that attackers had exploited a zero-day flaw in a file-transfer tool provided by a third party. This led to the compromise of the personal information of nearly 22,000 customers. Exposed personal data included financial account numbers, Social Security numbers, names, dates of birth, driver’s license numbers, tax identification numbers, and passport numbers. The breach happened between October 12 and 24, 2024, but data exfiltration went undetected for more than three months.
Incident #2. Ransomware attack on a third-party vendor
Exploited vulnerabilities in the third-party vendor’s systems
- Compromise of 57,000 customer records
- Financial liabilities related to providing two years of identity theft protection to affected customers
- Potential regulatory implications from delayed notification
On November 24, 2024, Infosys McCamish Systems (IMS), a provider of services for deferred compensation plans, notified Bank of America about a cybersecurity incident on the vendor’s side. The breach leaked sensitive customer data of more than 57,000 individuals, reinforcing how vendor infrastructure can impact large financial institutions. To compensate the affected customers, the bank provided them with complimentary identity theft protection services provided by Experian.
These two incidents underscore how third-party vulnerabilities can pose financial and reputational risk to major financial organizations, even if the institution’s own networks remain intact. This highlights the need for robust vendor security oversight and third-party risk management in banking.
How banks can effectively manage vendor risks
Prevention is always better than a cure.
Third-party risk management is a complex process of analyzing and addressing the risks associated with subcontractors. OCC, together with the Federal Reserve and FDIC, has provided detailed guidance on managing risks linked to relationships with third parties.
The proposed guidance offered a framework based on sound risk management principles for banking organizations to consider in developing risk management practices for all stages in the life cycle of third-party relationships.
The Federal Deposit Insurance Corporation (FDIC)
Third-party risk management lifecycle
Federal Register Bulletin 2023‑17, Interagency Guidance on Third‑Party Relationships: Risk Management, outlines five key stages of the third-party risk management lifecycle:
1. Planning
The initial stage involves justifying your business’s need for a third-party relationship and building a thorough plan for managing it. Your plan should take into account the complexity and the level of risk posed by the relationship with this particular subcontractor.
2. Due diligence and third-party selection
After planning, thoroughly vet your third parties and make sure they have in place strong cybersecurity, financial stability, operational resilience, and regulatory compliance to provide your organization with the required services or products.
3. Contract negotiation
This stage focuses on formalizing the relationship with a comprehensive contract. The contract should clearly define the nature and scope of the arrangement, the third party’s responsibilities, your security requirements, expected standards of performance, termination clauses, etc.
4. Ongoing monitoring
Once the relationship is established, your financial organization must continuously monitor the third party’s performance, risk profile, and compliance with contractual obligations. This includes regular audits, financial assessments, and security posture evaluations.
5. Termination
This final stage involves planning for and executing the termination of the relationship with the third party. It includes ensuring the secure return or destruction of data, the transition process, and how you will mitigate any potential disruptions to your organization’s operations.
Best practices for implementing a third-party risk management program
A third-party risk management program (TPRM) for financial institutions is a necessary element of effective subcontractor management. This program lays out a set of policies, tools, and activities for managing the risks posed by third-party vendors.
Implementing a comprehensive third-party vendor management program helps you see the full picture and prepares you for dealing with cybersecurity incidents caused by third parties.
Benefits of a third-party risk management program
Better risk transparency
Stronger data protection
Higher accountability levels
Fewer operational disruptions
Reduced risk of regulatory & legal penalties
Increased stakeholder trust
To build your own TPRM program, start with the following third-party risk management best practices:
Appoint responsible personnel
Appoint a dedicated individual or pull together a team that will be responsible for monitoring subcontractors and managing third-party vendor cybersecurity risks. Assign ownership of key tasks such as due diligence, contract management, ongoing monitoring, and issue resolution. Clear accountability ensures consistent execution, reduces oversight gaps, and aligns your TPRM program with your goals.
Clarify key regulatory requirements
Efficient third-party vendor risk management for financial institutions involves identifying which regulatory requirements your organization is subject to and what guidelines and recommendations you should follow. Start with the documents and regulations we already mentioned: OCC bulletins, PCI DSS, NIST, and BSA. You must also make sure that your third parties are aware of the cybersecurity standards, laws, and regulations they must comply with. Communicate your expectation that they include these requirements in their own regulatory compliance programs.
Outline possible risks
One of the best practices for third-party risk management is analyzing known subcontractor-related cybersecurity incidents to compose a list of possible threat vectors and risks. Look for the most efficient ways to address each risk as well as prevent and respond to potential incidents. Include these activities in your TPRM and incident response programs.
Build a risk profile for every subcontractor
Identify the risks posed by cooperation with each of your third-party vendors. When building a vendor profile, take into account such factors as:
- Systems, services, data, and physical locations that the vendor has access to
- Levels of access privileges granted to the vendor
- The quality of the vendor’s cybersecurity program
Using these profiles, you can easily determine which vendors should be monitored more closely.
Perform ongoing monitoring
Continuously evaluate your third-party relationships to ensure that they meet contractual obligations, performance expectations, and compliance requirements. This includes tracking service level agreements, conducting regular risk reassessments, reviewing audit reports, and requesting regular updates to documentation (e.g., certifications, financials, and security assessments).
Ongoing monitoring helps detect emerging issues early, maintain alignment with evolving risk profiles, and ensure that vendors continue to meet business objectives without introducing unacceptable risks.
Leverage third-party vendor risk management software
Deploying additional tools, such as remote computer monitoring software, can help improve the efficiency of third-party vendor risk management for financial institutions. Pay special attention to third-party vendor monitoring solutions that allow you to set granular access permissions, add more layers of protection to your most critical assets, and monitor subcontractors’ activity within your network.
How Syteca helps you mitigate third‑party risks
Syteca is a comprehensive platform for managing internal cybersecurity risks. Its rich set of features allows you to secure how vendors access your resources, monitor their interactions with your sensitive assets, and respond to threats promptly.
Safe third-party cooperation with Syteca
Key benefit: Secure access provisioning
Description: Enables you to grant secure, time-bound access to your systems and data, ensuring protection and compliance from day one.
Key benefit: Visibility into vendor activity
Description: Allows you to track, log, and analyze vendor activity in real time to detect anomalies, enforce policies, and maintain full oversight.
Key benefit: Real-time incident response
Description: Provides you with the ability to respond instantly to suspicious vendor activity or breaches with a customizable rule-based system.
In addition to third-party risk management, the Syteca platform can help you comply with financial data security regulations and standards such as NIST, PCI DSS, GLBA, and SOX.
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Secure your partnership with service providers
Working with third parties can benefit banks in many ways, from saving money on taxes to improving the quality of services. However, third-party vendors often have privileged access to their clients’ critical assets, and financial institutions are limited in how rigorously they can control the way these privileges are used.
Building an effective third-party vendor risk management (TRPM) program for banks can help your financial institution define the risks associated with third parties and find the most effective ways to mitigate them.
As a comprehensive cybersecurity platform, Syteca comes with a set of vital tools for effective third-party vendor management: vendor access controls, third-party activity monitoring, and real-time cybersecurity response capabilities.
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