Third-Party Risk Management (TPRM) Framework
Comprehensive framework for managing risks from vendors, suppliers, and other third parties throughout the relationship lifecycle.
Third-Party Risk Management Framework
Overview
TPRM is the process of identifying, assessing, and mitigating risks associated with outsourcing to third-party vendors and service providers.
TPRM Lifecycle
1. Planning & Risk Identification
- Maintain third-party inventory
- Classify by risk tier (critical, high, medium, low)
- Define inherent risk factors:
- Data access and sensitivity
- Operational criticality
- Financial exposure
- Regulatory requirements
2. Due Diligence
Assessment Areas:
- Financial stability
- Information security
- Business continuity
- Regulatory compliance
- Reputation
- Operational capability
Assessment Methods:
- Questionnaires (SIG, CAIQ)
- Document review
- On-site assessments
- Continuous monitoring
3. Contracting
Key Contract Provisions:
- Service level agreements (SLAs)
- Data protection requirements
- Right to audit
- Subcontracting restrictions
- Termination and exit rights
- Insurance requirements
- Incident notification
4. Ongoing Monitoring
- Performance against SLAs
- Periodic reassessments
- Continuous monitoring tools
- Regulatory change tracking
- Financial health monitoring
5. Termination & Exit
- Exit planning
- Data return/destruction
- Knowledge transfer
- Transition to new provider
Risk Categories
| Category | Examples | |----------|----------| | Strategic | Concentration, vendor lock-in | | Operational | Service disruption, quality | | Financial | Vendor insolvency | | Compliance | Regulatory violations | | Cyber | Data breach, system compromise | | Reputational | Negative publicity |
Regulatory Expectations
- OCC Guidance on Third-Party Relationships
- FCA/PRA Outsourcing Requirements
- EBA Guidelines on Outsourcing