Western Banker - July/August 2016 - (Page 16)

Four Steps to Winning the Vendor Management Battle By Steve Sanders "Know yourself and you will win all battles." hough written more than 2,500 years ago, this quote from Sun Tzu's "The Art of War" could have just as easily been written today for companies going to war in this ever-changing, risky environment. Knowing ourselves includes knowing our allies-those with whom we partner to do business. Unfortunately, there is story after story of companies not knowing their allies, a mistake that led to their demise. Community banks are not immune to the risks companies face today, particularly those associated with vendor management. Between the vendor management guidelines issued by the OCC in 2014 and the FFIEC in 2015, regulators have made it clear that banks are expected to know the companies with which they 16 www.wib.org Western Banker do business. While the regulations have been in effect for a year now, 2016 is when most community banks will begin to face the standards in regulatory audits-and many have et to build a framework to handle vendor management. This lack of progress typically happens when banks don't know where to start. Despite the appearance of being a massive task, there are four primary steps that can help every community bank win the vendor management battle: Simplify the Rules to Their Most Important Requirements The first step is identifying the level of scrutiny required for each vendor. Due diligence must be performed on all vendors, but some vendors require more scrutiny than others. Far too many banks perform the same amount of due diligence on every vendor, which ends up wasting time, and potentially leaves a bank exposed to risk due to the inadequacy of a one-size-fits-all approach. The typical community bank will have three tiers of vendors: critical, sensitive/confidential data and general. Critical vendors are the most important to correctly categorize, as their activities pose the highest risk. These critical activities could: * Cause the bank to face significant risk if the third party fails to meet expectations * Have significant customer effects * Require significant investment to implement the third-party relationship and manage the risks http://www.wib.org

Table of Contents for the Digital Edition of Western Banker - July/August 2016

A Message from the President & CEO
From Front-End Ratings to Ongoing Risk Analysis to Rating Migration
The Fifth Pillar: Continuing Expansion of KYC
Turning Compliance Overhead Into a Competitive Advantage
Getting Started With Third-Party Risk Management: Two Key Questions
Four Steps to Winning the Vendor Management Battle
Douglass M. Eberhardt, WIB Community Banker of the Year
Regulatory Hot Topics
Professional Development
Welcome New Members
Product and Services Directory
Index of Advertisers

Western Banker - July/August 2016

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