Vendor Management
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Vendor Management. Presented by Kristina Buckley of Buckley Technology Group. Understanding New Vendor Management Risks and Key Areas for Improvement. Risk Assessment & Due Diligence. Vendor Management Program. 1. 2. 3. Monitoring and Annual Reporting. SSAE16’s. 4. Contracts. 5.

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Vendor management

Vendor Management

Presented by Kristina Buckley of

Buckley Technology Group


Vendor management

Understanding New Vendor Management Risks and Key Areas for Improvement

Risk Assessment & Due Diligence

Vendor Management Program

1

2

3

Monitoring and Annual Reporting

SSAE16’s

4

Contracts

5


Vendor management

Vendor Management

  • The risks of Vendor Management and Outsourcing are numerous and complicated

  • A large number of critical processes are outsourced that contain customer and employee non-public information, along with the financial institution’s intellectual property in many cases

  • Upon outsourcing you have countless risks; reputation and brand risks, security breaches and regulatory compliance concerns.

  • All of above; costs the financial institution money from legal liability, business interruption and compliance fees to name a few!


Vendor management1

Vendor Management

  • Also have the issue of vendor relationships are scattered throughout the business units at the bank

  • Legal risks associated to lack of visibility into the vendor practices even if you get everything you would like into the contract

  • Information security issues at most banks lack the resources to monitor large number of potential security risks associated in-house, at the vendor, and at their vendors!


Vendor management2

Vendor Management

How to Improve?


Vendor management3

Vendor Management

  • Common knowledge are the requirements of a program including Service Providers, Third Parties and Subcontractors

    • Risk Assessment

    • Due Diligence/Documentation

    • Contracts

    • Monitoring


Vendor management4

Vendor Management

  • Let’s discuss some of the pitfalls or dilemmas we run into within each category

    • Risk Assessment

    • Due Diligence/Documentation

    • Contracts

    • Monitoring


Risk assessment

Risk Assessment

  • A preliminary review should be performed upon every vendor. The philosophy “they have been a long term vendor they warrant no review” is flawed.

  • A list of all vendors should be maintained and reviewed annually. Without a preliminary and annual you may miss:

    • If the long term vendor has NPI you have no way of knowing how that data is being retained, secured or disposed of without performing a risk assessment.

    • Without the risk assessment you may miss the fact your contract with this long term vendor is obsolete for GLBA, cybercrime and other compliance requirements.

    • You may miss identifying the vendor’s technology is outdated and vulnerable to the weekly attacks we all see.


Risk assessment1

Risk Assessment

  • We all agree the risk assessment needs to be tempered for the relationship.

  • We typically recommend an initial review of each vendor looking at five categories.

    • NPI

    • Financial

    • Operational/Impact

    • Reputation

    • Compliance

  • Build your risk assessment based on your findings above.


Risk assessment2

Risk Assessment

  • A risk assessment should also be performed for any prospective vendor or changed relationship.

    • Business change (merger and acquisitions)

    • Product change

    • Controls are changed

    • Regulations are changed (even if your contract states they will remain in compliance)


Risk assessment3

Risk Assessment

  • The Business Owner (Contract) is responsible for the Vendor and the Risk Assessment process.

    • If there are multiple relationships/contracts, all employees should be involved because the risks may vary by service.

    • Assign one employee as the primary. They are responsible to pull the team together.

  • The vendor management of a vendor should not be delegated to an employee unfamiliar with the vendor and the related processes.


Risk assessment4

Risk Assessment

  • Define and document up front the responsibilities of:

    • Business Owner

    • Legal

    • Vendor Management facilitator

    • Information Security

    • IT

    • Audit

    • Risk Management

    • Compliance


Risk assessment5

Risk Assessment

  • Require these employees to sign off on the risk assessment. If they are required to sign you will see a great deal more time and concern from them!

  • A big complaint is the time this process takes due to the number of vendors and the involvement of so many departments. Look at the time and costs your financial institution undergoes when something happens! It is worth the time.

    • Security Breach and customer reputation risk, notification, insurance and legal liability

    • Poor product implementation and impact upon IT infrastructure, security and compliance re-working!

  • Centralize the contracts and identify the business processes for DD and BCP.


Risk assessment npi

Risk AssessmentNPI

  • When reviewing NPI during the risk assessment make sure to identify the level and volume of NPI but also who is providing the NPI to the vendor.

    • Financial Institution?

    • Consumer?

  • What is the consumer’s perception of the relationship? Do they realize they are providing information to a third party or feel it may be a division of the bank?

    • NPI and Reputation risk

    • Call Centers & Mortgage & Investment Services


Risk assessment reputation

Risk AssessmentReputation

  • Recent example of ATM branding vendor.

  • The machine does not notify the customer that the machine is not owned or operated by the financial institution. So, what is the customer to think?

  • The bank does not have any control over who has access for cash replenishment or maintenance to the machines.

  • Typically, the security controls at the stores in which the machines reside is very limited.


Risk assessment reputation1

Risk AssessmentReputation

  • Will the customer blame the store or the financial institution in the situation of a security breach?

  • Will the bank’s insurance cover a security breach?

  • A review of the vendor contract identified some concerns for the financial institution.

    • SLA regarding maintenance and uptime was not tied to a measurement period and no penalties or credits were identified if SLA’s were missed.

    • Indemnification provision was too narrow and did not include verbiage for if any claim was made against FI as a result of Vendor’s performance under agreement. Also did not include a provision regarding cybercrime, loss of data.


Risk assessment npi1

Risk AssessmentNPI

  • Confidentiality provision was too narrow and did not address GLBA/NPI compliance although BIN numbers are provided.

  • Confidentiality provision did not address the retention, destruction and/or return of confidential information upon the termination of the agreement.

  • Contract was missing a provision giving the ability to audit the vendor/ or have access to vendor’s audit reports. (subcontractors) Also the ability to audit the site of the ATM machines.


Risk assessment government

Risk AssessmentGovernment

Fannie Mae and Freddie Mac

  • FHFA’s annual examination program assesses Fannie Mae's and Freddie Mac's financial safety and soundness and overall risk management practices.

    • Fannie Mae's and Freddie Mac's financial condition, earnings, liquidity, and efforts taken to mitigate losses in its single-family and multifamily portfolios.

    • Assess their response to continued stress in the mortgage markets and its effect on their risk profile, performance, and condition.


Risk assessment government1

Risk AssessmentGovernment

  • Reporting Framework 

  • Use a specific framework to summarize examination results and conclusions to Fannie Mae's and Freddie Mac's board of directors and Congress is known as GSEER, which stands for Governance, Solvency, Earnings, and Enterprise Risk (enterprise risk comprises credit, market, and operational risk management).

  • http://www.fhfa.gov/SupervisionRegulation/FannieMaeandFreddieMac.


Risk assessment6

Risk Assessment

Other Risk Questions to think of:

  • Does the financial institution need additional insurance coverage for the services?

  • Has a cost benefit analysis been performed?

  • Any lawsuits or legal proceedings involving the vendor, third parties or subcontractors?

  • Has the financial institution performed a reference review? (refer to sample risk assessment form)


Risk assessment7

Risk Assessment

Other remaining Risk Categories:

  • Transactional

  • Credit

  • Interest Rate

  • Liquidity

  • Out of Country


Due diligence documentation

Due Diligence & Documentation

If you have collected it, you are responsible to review it.

  • Business Continuity/Disaster Recovery Plan –

    • Is it current and applicable to the bank’s service?

  • Most Recent BC/DR Test Results –

    • Testing at least annual, applicable to the bank’s service and are the banks involved in testing? Is there any involvement from an independent third party?


Due diligence documentation1

Due Diligence & Documentation

  • Internal Audits Reports for GLBA, BSA, Red Flag Compliance

  • Most Recent Audited Financials

  • SSAE 16 Reports

  • Information Security Policies and Procedures

    • Current and includes all areas of security documented in a SSAE16


Due diligence documentation2

Due Diligence & Documentation

  • Current GL and E&O Insurance Certificates

    • Cybercrime if applicable

  • Most Recent Penetration/Vulnerability Test Results

    • Performed at a minimum of annually (depends on the service).

  • PCI DSS Compliance Certification

  • Privacy Policies and Procedures

    • Current and in compliance with Bank’s requirements


Due diligence documentation3

Due Diligence & Documentation

Recommendations for Documentation based on Risks:

  • NPI = High

    • SSAE16 or like Security Policy

    • Privacy Policy

    • PEN Test

      If not in contract:

    • Red Flag, GLBA, BSA, PCI

    • Security breach notification and Incident response

    • NPI disposal, retention, return

    • Confidentiality

    • Insurance


Due diligence documentation4

Due Diligence & Documentation

  • Recommendations for Documentation based on Risks:

  • Financial = High

    - Audited Financials

  • Operational/Impact = High

  • - BCP/DR


Ssae16 reports

SSAE16 Reports

  • Reports should be used to evaluate the vendors internal controls.

  • Report should be within two year period

  • Report should include relevant products

  • Exceptions and Management Responses and User Control Considerations should be reviewed, noted and documented.

  • Exceptions should be audited to ensure vendor is correcting vulnerabilities and maintaining security controls.


Ssae16 soc1

SSAE16SOC1

  • SOC 1SM Report – Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting (SSAE 16)

  • These reports, prepared in accordance with Statement on Standards for Attestation Engagements (SSAE) No. 16, Reporting on Controls at a Service Organization, are specifically intended to meet the needs of the of entities that use service organizations (user entities) and the CPAs that audit the user entities’ financial statements (user’ auditors), in evaluating the effect of the controls at the service organization on the user entities’ financial statements.

  • User auditors use these reports to plan and perform audits  of the user entities’ financial statements.   There are two types of reports for these engagements:


Ssae16 soc11

SSAE16SOC1

  • SOC 1Report – Report on Controls at a Service Organization Relevant to User Entities’ Internal Control over Financial Reporting (SSAE 16)

  • Type 2 -  report on the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design and operating effectiveness of the controls to achieve the related control objectives included in the description throughout a specified period.

  • Type 1 – report on the fairness of the presentation of management’s description of the service organization’s system and the suitability of the design of the controls to achieve the related control objectives included in the description as of a specified date.

  • Use of these reports is restricted to the management of the service organization, user entities, and user auditors.


Ssae16 soc2

SSAE16SOC2

Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality or Privacy

  • These reports are intended to meet the needs of a broad range of users that need to understand internal control at a service organization as it relates to security, availability, processing integrity, confidentiality and privacy.

  • These reports are performed using the AICPA Guide:  Reporting on Controls at a Service Organizations Relevant to Security, Availability, Processing Integrity,  Confidentiality, or Privacy  and are intended for use by stakeholders (e.g., customers, regulators, business partners, suppliers, directors) of the service organization that have a thorough understanding of the service organization and its  internal controls.


Ssae16 soc21

SSAE16SOC2

  • Report on Controls at a Service Organization Relevant to Security, Availability, Processing Integrity, Confidentiality or Privacy

  • These reports can form an important part of stakeholders:

  • Oversight of the organization

  • Vendor management program

  • Internal corporate governance and risk management processes

  • Regulatory oversight

  • Similar to  SOC 1sm  engagement there are two types of report : Type 2, report on management’s description of a service organization’s system and the suitability of the design and operating effectiveness of controls; and Type 1, report on management’s description of a service organization’s system and the suitability of the design of controls.  These reports may be restricted in use.  


Ssae16 soc3

SSAE16SOC3

SOC 3SM Report— Trust Services Report for Service Organizations

  • These reports are designed to meet the needs of users who need assurance about  the controls at a service organization that affect  the security, availability, and processing integrity of the systems used by a service organization to process users’ information ,and the  confidentiality, or privacy of that information, but do not have the need for or the knowledge necessary to make effective use of a SOC 2 Report.

  • These reports are prepared using the AICPA/Canadian Institute of Chartered Accountants (CICA) Trust Services Principles, Criteria, and Illustrations for Security, Availability, Processing Integrity, Confidentiality, and Privacy.  Because they are general use reports, SOC 3 reports can be freely distributed or posted on a website as a SysTrust for Service Organizations seal. 


Ssae16 soc12

SSAE16SOC1

SOC 3SM Report— Trust Services Report for Service Organizations

  • For more information about the SysTrust for Service Organization seal program go to www.webtrust.org.

  • Unlike a SOC 1 report, which is only an auditor-to-auditor communication, SOC 2 Reports are generally restricted use report  (at the discretion of the auditor using the guidance in the standard) and  SOC 3 Report (in all cases) will enable the service organization to share a general use report that would be relevant to current and prospective customers or as a marketing tool to demonstrate that they have appropriate controls in place to mitigate risks related to security, privacy, etc. 

    ** American Institute of CPA’s www. Aicpa.org


Ssae16 determination

SSAE16 Determination

When determining which SOC to require for a vendor consider the following areas:

  • What level of Operational/Impact, NPI and Reputation Risk has been assessed?

  • What is the availability of the service? Is it in-house, private server, data center, public cloud?

  • Are there any restrictions for the service? Time of usage, employee and vendor access, etc.


Ssae16 determination1

SSAE16 Determination

  • What are the known security controls? Are they adequate in comparison to the NPI and Reputation Risk rating?

  • What are the potential confidentiality issues that could arise? Security breach, loss of data by vendor or employee, disgruntled employee, etc.

  • What is the customer usage level for the service?

  • What are the legal ramifications of loss or data or service interruption?


Red flags

Red Flags

  • Be cautious if you run into any of the following during Risk Assessment or Documentation review:

  • Incomplete answers to your questions.

  • Confidential, we can’t share?

  • We have to run it by legal and get back to you.

  • IS Policies are not based on any accepted security standard (ISO27001).


Red flags1

Red Flags

  • Be cautious if you run into any of the following during Risk Assessment or Documentation review:

  • No formal security awareness training program noted for employees and subcontractors.

  • Old documentation such as Privacy policy.

  • Difficulty providing the overall material.


Monitoring

Monitoring

  • Review all due diligence documentation. Question if reports are not being updated at a minimum of every two years

  • Review of Penetration Test results (more during IT session

  • Monitor vendors with NPI risk for any changes in volume, data changes

    • Encryption

    • New technology for sending files

    • Remote access

    • Employee terminations


Annual reporting five components

Annual ReportingFive Components

Annual report of High risk vendors should include:

  • Vendor Overview

  • Vendor Risk Level Assessment

  • Operational Review

  • Legal/Regulatory Review

  • Conclusion


Annual reporting 1 vendor overview

Annual Reporting1. Vendor Overview

  • Service provided

  • Location of vendor corporation

  • If it is publicly traded or not

  • Experience in the financial industry

  • Number of other financial institutions using vendor

  • General reputation of the Vendor


Annual reporting 2 vendor risk level

Annual Reporting2. Vendor Risk Level

Assessment should answer:

Strategic Risk and Reputation Risk

  • Vendor’s product/services have what kind of direct impact on Strategic and Reputation risk?

  • Vendor’s products/services impact the financial institution how in these areas?


Annual reporting 2 vendor risk level1

Annual Reporting2. Vendor Risk Level

Assessment should answer:

Operational Risk

  • Vendor’s product/services have what kind of direct impact on Operational risk?

  • OR

  • Vendor’s products/services do not directly impact the financial institution’s operations.


Annual reporting 2 vendor risk level2

Annual Reporting2. Vendor Risk Level

Assessment should answer:

Transaction Risk

  • Vendor’s product/services have what kind of direct impact on Transaction risk?

  • OR

  • Vendor’s products/services do not interact with transaction processing.


Annual reporting 2 vendor risk level3

Annual Reporting2. Vendor Risk Level

Assessment should answer:

Credit Risk

  • Vendor’s product/services have what kind of direct impact on Credit and Interest rate risk?

  • OR

  • Vendor’s products/services do not interact with our lending area.


Annual reporting 2 vendor risk level4

Annual Reporting2. Vendor Risk Level

Assessment should answer:

Compliance Risk

  • Vendor’s product/services have what kind of direct impact on Compliance risk?


Annual reporting 2 vendor risk level5

Annual Reporting2. Vendor Risk Level

Assessment should answer:

Liquidity Risk

  • Vendor’s product/services have what kind of direct impact on Liquidity risk?

    OR

  • Vendor’s products/services do not impact our ability to fund obligations as they come due.

    Identify other Risk Categories as applicable!


Annual reporting 3 operational review

Annual Reporting3. Operational Review

  • Identify Vendor’s Financial strength noting:

    • Balance sheet

    • Debt

    • Income

      And any other pertinent discussion


Annual reporting 4 operational review

Annual Reporting4. Operational Review

  • A review of the Information Security controls indicated that

  • Information Security Audits

    • Vendor’s accounting firm provided a ___________ report

    • Report indicated that the internal controls were effective or ineffective.

    • Vendor provided a summary of its Information Security and Privacy Policies and procedures and they appear to be:

      • Current

      • Adequate


Annual reporting 4 operational review1

Annual Reporting4. Operational Review

  • Privacy policy included:

    • Proper employee background checks are or are not conducted

    • Confidentiality provisions are / are not executed by employees, contractors and or subcontractors.

    • Appropriate for the level of NPI being shared with the vendor and the financial institution’s compliance requirements.


Annual reporting 3 operational review1

Annual Reporting3. Operational Review

  • Privacy policy included:

    • Proper employee background checks are or are not conducted

    • Confidentiality provisions are / are not executed by employees, contractors and or subcontractors.

    • Appropriate for the level of NPI being shared with the vendor and the financial institution’s compliance requirements.


Annual reporting 3 operational review2

Annual Reporting3. Operational Review

  • Business Continuity and Disaster Recovery Plan:

    • Vendor provided a summary of it’s DR plan including the last test date and test results. According to the summary the plan provides for:

      • Action Plan

      • Back—up Facilities

      • Customer Response Center

      • Event Monitoring

      • Disaster Recovery Teams

      • IT Recovery Plan

      • Pandemic Plan


Annual reporting 3 operational review3

Annual Reporting3. Operational Review

  • Identify the Vendor Service Quality for the year.

  • Review and note any discussion required for the contract.


Annual reporting 4 legal regulatory

Annual Reporting4. Legal/Regulatory

  • Identify if the vendor has any litigation matters

  • Were any material lawsuits in their annual report

  • Identify if vendor is or is not subject to any significant regulatory actions.

    • If so, a copy of the most recent report of examination was reviewed and results were….

      Step 5 - Conclusion


Contract review

Contract Review

  • Legal counsel reviewed especially if NPI, compliance or Operational risk has been identified.

  • Ownership of data upon contract termination

  • NPI retention statement

  • NPI disposal statement

  • Security breach notification (within 24 hours) if NPI has potentially been compromised.


Contract review1

Contract Review

  • Warranty/statement of operating order/compliance for GLBA and other existing and new related state and federal regulations.

  • Service levels for maintenance and uptimes need to be tied to a measurement period and there should be corresponding penalties/credits if SLA’s missed.

  • Audit reports and frequency to be provided documented

  • Contract includes legal jurisdiction as state of financial institution


Contract review2

Contract Review

  • A provision giving the financial institution the ability to audit vendor or have access to the vendor audit reports and on-site premises.

  • Cybercrime indemnification clause

  • Confidentiality provision should address GLBA/NPI compliance

  • Responsibilities of all parties including subcontractors


Contract review3

Contract Review

Ownership and Licensing:

  • Use of Institution’s Data

    • Data mining

    • Marketing

  • Use of Processing Hardware

  • Use of Software

    • Virtualization

    • Operating System

    • Application

    • Updates


Contract review4

Contract Review

Business Continuity

  • Ensure a disaster recovery and business continuity plan exists and is included in the contract. (data centers, selective restores, mobile recovery units)

  • Ensure the vendor plan will allow the financial institution to meet their recovery time objectives for the service.

  • Document the roles and responsibilities of the vendor to provide the financial institution with test plans and results. Participate in the disaster recovery test whenever possible.


Contract review5

Contract Review

Cloud Computing

  • Review if Institution’s data separated from others in the Cloud

  • Restrictions on use of data

  • Responses to security breaches

  • Use of security measures such as encryption

  • Access to Vulnerability and Penetration tests

  • Loss of confidentiality

  • Loss of integrity

  • Loss of availability


Contract review6

Contract Review

Cloud Computing

  • End of Contract

    • Access to data

    • Deletion of data

    • Application

    • Updates


Contract review7

Contract Review

Subcontractor

  • Must have visibility into subcontractors

  • Define services to be performed by contractors

  • What NPI will subcontractors have access to?


Contract review8

Contract Review

Subcontractor

  • How does primary vendor assess contractors

  • What is the approval process for change of subcontractors? Is the financial institution notified and given notice?

  • Policy on Foreign firms


Regulatory sources and references

Regulatory Sources and References

  • Guidance for Managing Third Party Relationships – FIL 44-2008, FIL 50-2001

  • Part 364-B GLBA FDIC Rules and Regulations

  • FFIEC Supplement to Authentication in an Internet Banking Environment – FIL-50-2011

  • FFIEC Retail Payment Systems Handbook (FIL-6-2010)

  • FFIEC Guidance on Risk Management of Remote Deposit Capture (FIL-4-2009)


Vendor management

THANK YOU

Kris Buckley, President

[email protected]

www.buckleytechgroup.com

781.258.0618


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