Overseas Vendor Oversight
By Steve Greenfield
June 13, 2017
Steve Greenfield is Director of Third-Party Risk with Venminder, Elizabethtown, Ky. He is an experienced vendor risk executive with more than 20 years of management experience in the financial services industry. He joined Venminder from loanDepot llc where he served as Director of Vendor Oversight for its retail division, Mortgage Master. He is a regular contributor to MBA Insights; this is the fourth installment of a five-part series on vendor management.
If your financial institution has elected to leverage the benefits of outsourcing a function to an overseas based partner, it's important as a vendor manager to ensure that senior leadership is onboard with any associated risks. After all, what could go wrong?
The Benefit of Overseas Vendor
There are pros and cons to offshoring for the non-bank lender. From a benefit perspective, there could be the cost advantage of overseas employees performing more administrative functions of the mortgage lending process and because of time zone differences a loan application may be moving through the process while the lender is literally sleeping!
A Major Concern of Overseas Vendors
Typically, these functions are not customer facing but and here's the crux of the concern--non-public personal information is now being accessed by a third party who happens to be several thousand miles away. Access to and storage of that data then has the potential to be a prime target for identity theft.
Other Concerns to Be Aware
System access is another concern. Here are some key questions to ask:
--How are overseas contractors accessing the data?
--Is the data stored on the vendor's data center or are they accessing the lenders systems?
--What controls are in place to monitor and track this?
--Is system access tracked and audited for any suspicious activity?
There is also environmental risk to consider. Ask yourself this question: Is the country of origin susceptible to power outages which may impact production?
Overseas Vendor Is Considered Critical
Under the banner of TRUST BUT VERIFY, it becomes apparent that an overseas vendor should be categorized as a critical vendor. While the functions performed may not critically hinder the mortgage operation, the fall-out from the increased risk of a data breach or poor physical and cybersecurity should be cause for concern. Make sure you know the details of that vendor's operation.
To gain that knowledge of all details of the operation, speak with your vendor about organizing a site visit. Getting the logistics planned correctly is critical for a successful trip.
What You'll Need
To set up the site visit you'll need an invitation from the vendor stating that you (the person conducting the audit) will be visiting on "X" date, duration and possible locations.
For advice regarding passport and visa requirements, vaccination requirements and general etiquette and safety advice, visit www.travel.state.gov.
When You're on the Ground
Once you are on site, conduct the vendor audit and make sure you back up all notes on your corporate shared drive. If you elect to save to a thumb drive, ensure these data are password protected. The back-up will ensure you have the data once you are back on U.S. soil should anything be lost in transit.
Since the focus has been on data exchange, this is also the time to physically audit the data center. Typically, these are in other cities away from the main outsource production office. As part of the planning stage, make sure to include this in your requirement list.
Finalize the Report
Because of the high-risk exposure for this vendor, make sure the audit report and executive summary are submitted for final sign-off by your corporate vendor management board.
Since the board level is ultimately responsible for the vendor management function, unless the audit report and executive summary have been approved, it's unlikely that the examiner will consider the actual audit to have been finalized. In turn, this may be reported back as a Matter Needing Attention. Don't let your hard work go to waste.
State and federal examiners and investors have been increasingly asking about the oversight practices of overseas vendor. Make sure you follow these tips to ensure they're satisfied.
(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor does it connote an endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at firstname.lastname@example.org; or Michael Tucker, editorial manager, at email@example.com.)