Regulatory Evolution in Vendor Management: Preparing for Compliance in 2025 and Beyond

Introduction

In 2025, the regulatory landscape governing vendor and third-party risk management has undergone significant transformation. Financial institutions and organizations across various sectors are now compelled to reassess and fortify their vendor management frameworks to align with evolving compliance requirements. This shift is driven by heightened scrutiny from regulatory bodies, aiming to ensure that organizations maintain robust oversight over their third-party relationships.

One notable development is the Securities and Exchange Commission's (SEC) enhancement of vendor management requirements. These updates emphasize the necessity for firms to implement comprehensive due diligence processes and continuous monitoring of third-party service providers, particularly those handling sensitive customer information. The SEC's focus is on ensuring that organizations can effectively identify, assess, and mitigate risks associated with their vendors.

Simultaneously, the European Union has introduced the Digital Operational Resilience Act (DORA), which came into effect on January 17, 2025. DORA mandates that financial entities, including banks and insurance companies, establish resilient operational frameworks capable of withstanding and recovering from information and communication technology (ICT) disruptions. A critical component of DORA is the requirement for stringent oversight of third-party ICT service providers, ensuring that these vendors do not become points of vulnerability within the financial system.

In the United States, regulators have intensified their focus on vendor management practices. As highlighted by industry insights, there is an increased emphasis on how banks and financial institutions assess, monitor, and manage their third-party relationships. This includes evaluating the effectiveness of existing vendor risk management policies and ensuring that organizations can demonstrate proactive measures in identifying and addressing potential risks posed by their vendors.

These regulatory advancements underscore the imperative for organizations to adopt a more rigorous and structured approach to vendor risk management. Compliance is no longer a static checklist but a dynamic process that requires continuous evaluation and adaptation to meet the stringent expectations set forth by regulatory authorities.

The Regulatory Surge: Global Trends Reshaping Vendor Oversight

In 2025, regulatory bodies worldwide have intensified their focus on vendor and third-party risk management, prompting organizations to reevaluate and strengthen their oversight mechanisms. This surge in regulatory activity reflects a global consensus on the critical importance of robust vendor management practices in safeguarding financial systems and consumer data.

In the United States, regulatory agencies have underscored the significance of effective vendor oversight. The Federal Reserve, Federal Deposit Insurance Corporation (FDIC), and Office of the Comptroller of the Currency (OCC) have collectively emphasized the need for financial institutions to implement comprehensive third-party risk management frameworks. These frameworks are designed to ensure that banks and other financial entities can identify, assess, and mitigate risks associated with their third-party relationships. U.S. Regulators Prioritize Vendor Management in 2025

Complementing these efforts, the Financial Industry Regulatory Authority (FINRA) released its 2025 Annual Regulatory Oversight Report, highlighting third-party risk as a key area of concern. The report advises firms to conduct thorough due diligence, validate data protection controls in vendor contracts, and maintain comprehensive inventories of all third-party services utilized. 2025 FINRA Annual Regulatory Oversight Report

Across the Atlantic, the European Union has implemented the Digital Operational Resilience Act (DORA), a regulation mandating financial entities to enhance their digital operational resilience. DORA requires organizations to ensure that their third-party ICT service providers adhere to stringent security and risk management standards, thereby minimizing potential vulnerabilities within the financial sector. Digital Operational Resilience Act (DORA)

In the United Kingdom, the proposed Cyber Security and Resilience Bill aims to update existing cybersecurity regulations, expanding the scope to include a broader range of digital services and infrastructure. This legislation seeks to bolster the UK's cyber defenses by imposing stricter reporting requirements and enhancing the regulatory framework governing critical digital services. Cyber Security and Resilience Bill

Furthermore, procurement regulations are evolving to address sustainability and resilience. The UK's Critical Third Party (CTP) regime, set to launch in January 2025, focuses on enhancing the resilience of the financial system by overseeing third-party service providers deemed critical to its stability. Organizations designated as CTPs must prepare to meet new regulatory standards under the Financial Services and Markets Act 2023. Regulatory Shifts for Procurement to Keep in Mind for 2025

These global regulatory developments signify a paradigm shift in how organizations must approach vendor and third-party risk management. Compliance is no longer a static requirement but a dynamic process necessitating continuous evaluation and adaptation to meet the escalating expectations of regulatory authorities.

Core Compliance Pillars for Vendor Management

Effective vendor management in 2025 requires a structured approach built upon foundational pillars that ensure compliance, mitigate risks, and enhance operational efficiency. The following core pillars are essential for organizations aiming to strengthen their vendor management frameworks:

1. Comprehensive Vendor Selection and Onboarding

Establishing a standardized process for selecting and onboarding vendors is crucial. This includes conducting thorough due diligence to assess potential vendors' financial stability, compliance history, and operational capabilities. Utilizing automated onboarding systems can streamline this process, ensuring consistency and reducing the risk of human error. The Five Pillars of an Effective Supplier Management Program

2. Robust Contract and Compliance Management

Maintaining clear and enforceable contracts with vendors is vital. Contracts should outline compliance requirements, performance metrics, and consequences for non-compliance. Regular reviews and updates to contracts ensure they remain aligned with evolving regulatory standards. Implementing contract management software can aid in tracking obligations and deadlines. Vendor Compliance Management Planning Calendar

3. Continuous Performance and Risk Monitoring

Ongoing monitoring of vendor performance against established key performance indicators (KPIs) allows organizations to identify and address issues proactively. Regular risk assessments help in detecting changes in a vendor's risk profile, enabling timely interventions. Leveraging analytics and reporting tools can provide insights into vendor performance trends. Vendor Compliance Management Strategy

4. Strategic Vendor Categorization

Classifying vendors based on factors such as criticality, risk level, and service type allows for tailored management strategies. High-risk or critical vendors may require more frequent audits and closer oversight, while lower-risk vendors can be managed with standard procedures. This stratification ensures efficient allocation of resources and focused risk management efforts. The Five Pillars of an Effective Supplier Management Program

5. Automation and Process Optimization

Integrating automation into vendor management processes enhances efficiency and reduces the likelihood of errors. Automated systems can handle tasks such as compliance tracking, document management, and communication workflows, freeing up resources for strategic activities. Embracing technology ensures scalability and adaptability in a dynamic regulatory environment. Vendor Compliance Management Planning Calendar

By focusing on these core pillars, organizations can build resilient vendor management programs that not only comply with current regulations but are also adaptable to future changes in the regulatory landscape.

Key Regulatory Bodies and Their Expectations

In 2025, regulatory bodies worldwide have intensified their focus on third-party risk management, emphasizing the need for robust oversight of vendor relationships. Understanding the expectations of these regulators is crucial for organizations aiming to maintain compliance and operational resilience.

U.S. Securities and Exchange Commission (SEC)

The SEC's 2025 Examination Priorities highlight a heightened focus on vendor risk management. Registered entities are expected to:

• Identify and assess risks associated with third-party service providers.
• Implement effective oversight and monitoring mechanisms.
• Ensure that vendors comply with applicable securities laws and regulations.

These expectations underscore the SEC's commitment to safeguarding investor interests and maintaining market integrity. SEC's 2025 Examination Priorities

European Banking Authority (EBA)

The EBA's Guidelines on Outsourcing Arrangements provide a comprehensive framework for managing outsourcing risks. Key requirements include:

• Conducting thorough due diligence before entering outsourcing agreements.
• Maintaining a register of all outsourcing arrangements.
• Ensuring that outsourcing does not impair the quality of the institution's internal control and the ability of the supervisory authority to monitor compliance.

These guidelines aim to promote consistency and transparency across the EU banking sector. EBA Guidelines on Outsourcing Arrangements

Monetary Authority of Singapore (MAS)

MAS has issued guidelines emphasizing the importance of managing risks associated with outsourcing. Financial institutions are expected to:

• Assess and manage risks arising from outsourcing arrangements.
• Ensure that service providers maintain the same standards of security and confidentiality as the institutions themselves.
• Establish contingency plans to address service disruptions.

These guidelines reinforce MAS's commitment to maintaining the stability and integrity of Singapore's financial system. MAS Third-Party Risk Management Guidelines

Australian Prudential Regulation Authority (APRA)

APRA's Prudential Standard CPS 230 sets out requirements for managing operational risks, including those arising from third-party service providers. Key expectations include:

• Identifying and assessing operational risks associated with service providers.
• Implementing controls to mitigate identified risks.
• Ensuring that critical operations can continue during disruptions.

This standard aims to enhance the operational resilience of APRA-regulated entities. APRA Prudential Standard CPS 230

Case Studies: When Vendor Compliance Fails

Understanding the real-world implications of vendor compliance failures is crucial for organizations aiming to fortify their third-party risk management strategies. The following case studies illustrate the significant consequences that can arise from lapses in vendor oversight.

Morgan Stanley's Data Decommissioning Oversight

In 2016, Morgan Stanley faced substantial penalties due to inadequate oversight of a third-party vendor responsible for decommissioning data centers. The vendor failed to properly erase sensitive client data from decommissioned hardware, which was later sold online, leading to unauthorized exposure of personally identifiable information (PII).

Consequences included:

• $35 million fine imposed by the Securities and Exchange Commission (SEC)
• $60 million civil money penalty levied by the Office of the Comptroller of the Currency (OCC)
• $60 million settlement in a customer lawsuit
• $6.5 million settlement with state attorney generals

This incident underscores the importance of thorough risk assessments, due diligence in vendor selection, and continuous monitoring of vendor activities. Morgan Stanley's $100+ Million Vendor Management Mistake

Target's HVAC Vendor Breach

In 2013, Target Corporation experienced a massive data breach compromising the personal information of approximately 110 million customers. The breach originated from network credentials stolen from a third-party HVAC vendor, highlighting vulnerabilities in vendor access controls.

Key takeaways include:

• Necessity for stringent access management protocols for vendors
• Importance of regular security assessments of third-party partners
• Implementation of network segmentation to limit vendor access

This case emphasizes the critical need for robust cybersecurity measures and vigilant oversight of third-party vendors to prevent similar breaches. The Consequences of Failed Third-Party Risk Management

Proactive Strategies to Stay Ahead of Regulation

In the rapidly evolving regulatory landscape of 2025, organizations must adopt proactive strategies to ensure compliance in vendor management. The following approaches are essential for staying ahead of regulatory expectations:

1. Implement Continuous Vendor Risk Monitoring

Traditional periodic assessments are no longer sufficient. Organizations should adopt continuous monitoring practices to assess and respond to risks associated with third-party vendors in real-time. This approach provides ongoing visibility into a vendor’s risk posture, allowing for immediate action when new threats emerge. Key elements include:

• External risk intelligence: Automated feeds reporting on cyber incidents, financial distress, regulatory violations, and geopolitical shifts.
• Trigger-based alerts: Notifications sent when a vendor’s risk profile changes significantly.
• Integration with decision workflows: Real-time scores and alerts integrated into vendor risk management platforms and internal processes.

For a comprehensive guide, refer to our Continuous Vendor Risk Monitoring Guide.

2. Conduct Comprehensive Vendor Risk Assessments

A structured approach to vendor risk assessment is crucial. Organizations should:

• Identify and classify vendors based on criticality, data access, operational dependency, and regulatory exposure.
• Gather and validate vendor information, including certifications and control documentation.
• Perform due diligence checks on financial health, legal standing, and history of breaches or regulatory action.
• Conduct risk scoring and categorization across domains such as cybersecurity, financial, operational, legal, and compliance.
• Assign controls and risk mitigation strategies tailored to the vendor's risk profile.

For detailed steps, consult our Vendor Risk Assessment Guide.

3. Leverage AI-Augmented Vendor Risk Management

Artificial Intelligence (AI) is transforming vendor risk management by enhancing assessment, selection, and response processes. AI-augmented solutions enable:

• Real-time insight into vendor activities and risk indicators.
• Autonomous threat response and predictive resilience.
• Enhanced scalability and adaptability to evolving threats and regulatory requirements.

Explore the evolution from traditional oversight to intelligent systems in our article on AI-Augmented Vendor Risk 2025.

Tools & Frameworks to Streamline Compliance

In the evolving landscape of vendor risk management, organizations must leverage established frameworks and advanced tools to ensure compliance with regulatory standards. Implementing structured methodologies and utilizing technological solutions can significantly enhance the efficiency and effectiveness of compliance processes.

ISO/IEC 27036:2016-2023 — Cybersecurity — Supplier Relationships

The ISO/IEC 27036 series provides comprehensive guidelines for managing information security risks associated with supplier relationships. It emphasizes the importance of establishing clear security requirements and controls throughout the supplier lifecycle, from selection to termination. Adopting this standard helps organizations mitigate risks related to third-party engagements and ensures alignment with international best practices. ISO/IEC 27036:2016-2023 — Cybersecurity — Supplier relationships

NIST SP 800-161 Rev. 1 — Cybersecurity Supply Chain Risk Management

The NIST SP 800-161 Rev. 1 framework offers detailed guidance on identifying, assessing, and mitigating cybersecurity risks within the supply chain. It integrates supply chain risk management into organizational risk management activities, providing a multi-tiered approach to address risks at various organizational levels. Implementing this framework aids in developing robust policies and procedures for managing supply chain cybersecurity risks. SP 800-161 Rev. 1, Cybersecurity Supply Chain Risk Management

DORA Compliance Tools

The Digital Operational Resilience Act (DORA) mandates that financial entities ensure the resilience of their ICT systems. Compliance tools designed for DORA assist organizations in managing ICT third-party risks by providing functionalities such as risk assessment, monitoring, and incident reporting. Utilizing these tools enables organizations to meet DORA requirements effectively and maintain operational resilience. DORA Compliance Software Solution

AI-Augmented Vendor Risk Management

Artificial Intelligence (AI) technologies are increasingly being integrated into vendor risk management processes. AI-powered tools can automate risk assessments, monitor vendor activities in real-time, and predict potential compliance issues. By leveraging AI, organizations can enhance their ability to detect and respond to risks promptly, thereby strengthening their overall compliance posture. AI-Augmented Vendor Risk 2025

Aligning Compliance with Business Objectives

In the evolving landscape of vendor risk management, organizations must shift their perspective on compliance. Rather than viewing it as a mere regulatory obligation, compliance should be integrated into the core business strategy, serving as a catalyst for operational excellence and competitive advantage.

Strategic Integration of Compliance

Embedding compliance into business objectives ensures that regulatory requirements are not just met but leveraged to enhance organizational performance. This strategic integration involves aligning compliance initiatives with key business goals, such as market expansion, innovation, and customer satisfaction. By doing so, organizations can proactively address potential risks and seize opportunities for growth. Strategic compliance management: aligning 5 business objectives with regulatory requirements

Compliance as a Business Enabler

Viewing compliance as a business enabler transforms it from a reactive function to a proactive force that drives decision-making and innovation. This perspective encourages organizations to develop robust governance, risk, and compliance (GRC) programs that support agile operations and informed strategic choices. Risk Management as a Business Enabler - NAVEX

Integrating Compliance and Risk Management

Effective integration of compliance and risk management functions is crucial for aligning with business objectives. This integration facilitates a holistic approach to identifying, assessing, and mitigating risks, ensuring that compliance efforts support overall organizational resilience and adaptability. Compliance and Risk Management: Why Integrating Them Is Key to Protecting Your Organization

Leveraging ISO 31000 for Alignment

Adopting international standards such as ISO 31000 provides a structured framework for aligning compliance with business objectives. ISO 31000 offers guidelines for risk management that help organizations integrate risk considerations into decision-making processes, thereby enhancing the effectiveness of compliance programs and supporting strategic goals. ISO 31000

Conclusion

As we navigate the complexities of vendor management in an era marked by rapid regulatory evolution, it becomes imperative for organizations to adopt a proactive and strategic approach to compliance. The integration of compliance into core business objectives is no longer optional but a necessity for sustainable growth and resilience.

Adhering to international standards such as ISO 31000:2018 – Risk management – Guidelines provides a structured framework for identifying, assessing, and mitigating risks associated with vendor relationships. This standard emphasizes the importance of embedding risk management into all organizational activities, thereby enhancing decision-making processes and operational efficiency.

Furthermore, viewing risk management as a business enabler, as discussed in Risk Management as a Business Enabler – NAVEX, allows organizations to transform compliance from a reactive function into a proactive strategy that supports innovation and competitive advantage.

Aligning compliance initiatives with business goals ensures that regulatory requirements are met while also driving value creation. The insights provided in Aligning compliance with business goals: A strategic approach highlight the significance of this alignment in achieving organizational objectives and fostering a culture of continuous improvement.

In conclusion, the evolving regulatory landscape necessitates a shift in perspective—viewing compliance not as a burden but as a strategic asset. By integrating compliance into the fabric of organizational strategy and operations, businesses can enhance their resilience, foster trust with stakeholders, and position themselves for long-term success in an increasingly complex global environment.