- \n
- Financial institutions benefit from outsourcing to third parties, which can introduce serious cybersecurity, compliance, and operational risks.<\/li>\n\n\n\n
- 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.<\/li>\n\n\n\n
- Effective management of cybersecurity risks in banking includes developing a robust third-party risk management program and deploying vendor risk management tools for banks.<\/li>\n<\/ul>\n\n\n\n
Why must financial institutions manage third-party risks?<\/h2>\n\n\n\n
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:<\/p>\n\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\n4 reasons why banks work with third parties<\/p>\n\n\n\t\t\t \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\t\n\nFlexible team scaling<\/h3>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\nHiring external experts allows financial entities to easily expand or adapt teams, avoiding lengthy hiring cycles and enabling faster responses to changing business needs.<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nReduced hiring costs<\/h3>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nBy working with third parties, banks can minimize expenses tied to recruiting, onboarding, and maintaining full-time staff, while potentially lowering tax and infrastructure overhead.<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\t\n\nIncreased operational efficiency<\/h3>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\nDelegating 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.<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nFaster tech adoption<\/h3>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nBanks 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.<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\t\t\t \n\t\t<\/div>\n\t\n\n\n
Despite all these advantages, many banking organizations are wary of hiring independent contractors, mostly because of the security and compliance issues this cooperation entails.<\/p>\n\n\n\n
Cybersecurity risks for financial entities<\/h3>\n\n\n\n
Your ally may easily become a threat.<\/em><\/p>\n\n\n\n
According to the X-Force 2025 Threat Intelligence Index<\/a> by IBM Security, the finance<\/a> and insurance<\/a> industry is the second most attacked industry, accounting for 23% and 26% of all 2024 cybersecurity incidents, respectively.<\/p>\n\n\n\n
![\"Statistics](\"https:\/\/syteca_site_uploads.storage.googleapis.com\/wp-content\/uploads\/2020\/01\/13045343\/figure-1-banks-independent-contractors-trust-verify-1024x329.png\")
<\/figure>\n\n\n\nThese numbers reflect the sector\u2019s susceptibility to data breaches, considering that banks often have to grant third parties access to sensitive data, critical systems, and other important resources. <\/p>\n\n\n\n
Cooperation with subcontractors carries no guarantee that a third-party vendor won\u2019t misuse their access privileges. Additionally, hackers initiating supply chain attacks<\/a> may target your subcontractors to gain access to your sensitive data and critical systems.<\/p>\n\n\n\n
It\u2019s crucial to remember that, though you may delegate some tasks and functions to a third party, ensuring your organization\u2019s cybersecurity is still your responsibility. Neglecting this responsibility can lead to devastating consequences. <\/p>\n\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n6 key risks third-party vendors pose to financial entities<\/h3>\n\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nData leaks<\/p>\n\n\n\t\t\t \n\t\t<\/div>\n\t\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nFinancial losses<\/p>\n\n\n\t\t\t \n\t\t<\/div>\n\t\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nReputational damage<\/p>\n\n\n\t\t\t \n\t\t<\/div>\n\t\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nCompliance issues<\/p>\n\n\n\t\t\t \n\t\t<\/div>\n\t\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nOperational disruptions<\/p>\n\n\n\t\t\t \n\t\t<\/div>\n\t\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nFourth-party risks<\/p>\n\n\n\t\t\t \n\t\t<\/div>\n\t\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\t\t\t \n\t\t<\/div>\n\t\n\n\n
Data leaks<\/strong>. Financial institutions rely heavily on information as a core asset, but cybercriminals and negligent employees can undermine its integrity.<\/p>\n\n\n\n
Financial losses<\/strong>. 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.<\/p>\n\n\n\n
Reputational damage<\/strong>. Third-party-related security incidents may harm a bank\u2019s reputation and lead to a loss of customer trust.<\/p>\n\n\n\n
Compliance issues<\/strong>. Third-party cyber risk management<\/a> is also one of the key requirements of financial data security regulations<\/a>, laws, and standards, including OCC<\/a> bulletins, GLBA<\/a>, PCI DSS<\/a>, NIST<\/a>, etc. Failure to comply can result in lawsuits, fines, and penalties.<\/p>\n\n\n\n
Operational disruptions<\/strong>. Cybersecurity incidents caused by third-party vendors may seriously disrupt your company\u2019s operations and affect network and service availability.<\/p>\n\n\n\n
Fourth-party risks<\/strong>. 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.<\/p>\n\n\n\n
Next, we\u2019ll examine what unsecured cooperation with third parties can lead to in practice.<\/p>\n\n\n\n
Examples of cybersecurity incidents caused by vendor access in banks and financial institutions<\/h3>\n\n\n\n
To understand what\u2019s at stake, let\u2019s now analyze two infamous data breaches in which financial institutions were compromised through their cooperation with third-party service providers and vendors.<\/p>\n\n\n\n
Incident #1. Third-party software vulnerability exploit<\/h4>\n\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nOrganization<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nWestern Alliance Bank<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nYear<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\n2024<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nIncident cause<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nZero-day exploit in third-party secure file transfer software<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nConsequences<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\n- \n
- Personally identifiable information of 22,000 customers leaked<\/li>\n\n\n\n
- 46-day delay in public disclosure after discovery of the incident<\/li>\n\n\n\n
- Potential reputational damage due to the risk of identity theft and financial fraud for affected customers<\/li>\n<\/ul>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\t\t\t \n\t\t<\/div>\n\t\n\n\n
On January 27, 2025, Western Alliance Bank discovered that attackers had exploited a zero-day flaw<\/a> 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.<\/p>\n\n\n\n
Incident #2. Ransomware attack on a third-party vendor<\/h4>\n\n\n\n\t\t
\n\t\t\t\n\t\t\t\n\n\t\t\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nOrganization<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nBank of America<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nYear<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\n2024<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nIncident cause<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nExploited vulnerabilities in the third-party vendor\u2019s systems<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\n\t\t\t\n\n\t\t\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\nConsequences<\/p>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n\n\n\t\t
\n\t\t\t\n\t\t\n\t\t\t\n\t\t\t\t\n\t\t\t\t\t\n\t\t\t\n\t <\/div>\n\n\t \n\n\t \n\n\t \n\t \t\t\t<\/div>\n\t \t\t<\/div>\n\t \t<\/div>\n\t <\/div>\n\t\n\t\t\t\n\n- \n
- Compromise of 57,000 customer records<\/li>\n\n\n\n
- Financial liabilities related to providing two years of identity theft protection to affected customers<\/li>\n\n\n\n
- Potential regulatory implications from delayed notification<\/li>\n<\/ul>\n\n \n\t\t\t\n\t\t<\/div>\n\t\n \n\t\t<\/div>\n\t\n\n\t\t\t \n\t\t<\/div>\n\t\n\n\n
On November 24, 2024, Infosys McCamish Systems (IMS), a provider of services for deferred compensation plans, notified Bank of America about a cybersecurity incident<\/a> on the vendor\u2019s 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.<\/p>\n\n\n\n
These two incidents underscore how third-party vulnerabilities can pose financial and reputational risk to major financial organizations, even if the institution\u2019s own networks remain intact. This highlights the need for robust vendor security oversight and third-party risk management in banking.<\/p>\n\n\n\n
How banks can effectively manage vendor risks<\/h2>\n\n\n\n
Prevention is always better than a cure.<\/em><\/p>\n\n\n\n
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.<\/p>\n\n\n\n
\n
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.<\/strong><\/em><\/p>\n\n\n\n
![\"Stages](\"https:\/\/syteca_site_uploads.storage.googleapis.com\/wp-content\/uploads\/2020\/01\/13051030\/figure-2-banks-independent-contractors-trust-verify-1024x379.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/www.syteca.com\/wp-content\/uploads\/2023\/03\/check-icon.svg\"){kind=icon}
<\/figure>\n\n\n\n