Vendor compliance management is a growing priority for fintechs treading across complex regulatory environments. As more financial services companies lean on third-party vendors to deliver key operations like the KYC technology, payment processing, or cloud infrastructure, regulators are making one thing clear: you’re responsible for what your vendors do on your behalf.
This article provides a practical breakdown of what vendor compliance management entails, its importance, and how to implement it effectively. We’ll cover key regulatory expectations, risks that often go overlooked, and the misconceptions that trip up even experienced teams. You’ll also get a clear set of best practices, tools, and recent enforcement trends that show what regulators are watching in 2025.
What Is Vendor Compliance Management in Financial Services?
Vendor compliance management refers to the systems and processes a financial services company uses to monitor, assess, and control the regulatory risks introduced by third-party vendors. Along with operational efficiency, it’s about making sure your external partners don’t put your business out of step with the rules that govern your industry.
In fintech, vendor relationships often touch sensitive areas like
Customer data
Financial transactions
Advertising
Regulatory reporting
That means even a minor oversight from a vendor can expose your company to fines, reputational damage, or worse. Regulatory bodies, including the OCC, FDIC, SEC, FINRA, and CFPB, are clear that outsourcing doesn’t shift accountability. If a vendor messes up, you’re still the one on the hook.
Vendor compliance management typically spans the full lifecycle of a vendor relationship:
Risk classification and due diligence before contracting
Legal agreements with clearly defined compliance expectations
Ongoing monitoring of vendor performance and regulatory adherence
Exit planning and incident response protocols
For fintechs, especially those blending new tech with regulated products, a lightweight or informal approach to vendor oversight can become a liability. The further your vendors are from the core compliance mindset, the more deliberate your oversight needs to be.
Why Vendor Management Matters for Compliance
In regulated financial services, regulators equate vendor risk as a compliance risk and may raise flags. Whether you're a fintech startup or an established institution, your vendors can introduce legal, operational, and reputational liabilities if they're not properly managed.
Fintechs often rely on vendors to deliver regulated functions: onboarding users, processing payments, storing sensitive data, and handling disclosures. If a vendor fails to meet regulatory standards in any of these areas, it's your name that appears in the enforcement action. That’s why vendor management is a procurement task as well as a compliance function.
Here are the main reasons vendor management matters:
Regulatory accountability: The OCC, SEC, CFPB, and others have made it clear: outsourcing a function doesn’t outsource responsibility. If your vendor mishandles sensitive data or skips a regulatory step, your company takes the hit.
Involvement in regulated activities: In fintech, third parties may handle tasks like identity verification, transaction monitoring, or customer communication. These are compliance-critical functions, and gaps here can trigger serious violations.
Cybersecurity and data privacy exposure: A breach at your vendor can expose your customers' data and your firm to enforcement. Regulators increasingly expect firms to vet and monitor the cybersecurity practices of all vendors with access to personal or financial information.
Operational risk: If a key service provider goes offline or mishandles a process, the fallout lands on your team. This can disrupt your operations, create gaps in required reporting, or affect customer-facing services.
Licensing and audit implications: During licensing or examinations, regulators may ask how you manage vendor relationships. Poor documentation or oversight can raise red flags, even if no incident has occurred.
Reputational risk: Customers may not distinguish between you and your vendor. If a vendor error impacts users, the reputational damage sticks with your brand, not theirs.
Done well, vendor compliance management can reduce your exposure and strengthen your overall compliance program. It also makes licensing, audits, and investor diligence more straightforward.
Tip: Regly helps fintechs produce accurate vendor oversight records when regulators or auditors request them.
Key Regulatory Expectations for Vendor Compliance
Regulators don’t treat vendor oversight as optional. In recent years, guidance from federal and state agencies has consistently emphasized that financial institutions must take an active role in managing their third-party risk.
What does this look like in practice? You'll want to really dig into potential vendors before bringing them on board, make sure everyone's on the same page about what's expected (and get it in writing), and then keep a close eye on how they're performing once they're up and running. This is especially crucial when you're dealing with anything high-risk or heavily regulated.
Now, different regulators have their own takes on what they want to see:
US Banking Regulators: OCC, FDIC, Federal Reserve
In 2023, the OCC, FDIC, and Federal Reserve issued joint guidance outlining a unified framework for third-party risk management. It applies broadly to banks but also affects fintechs working with bank partners or using banking-as-a-service models.
Key takeaways of this include:
Banks are fully responsible for the actions of their vendors and partners.
Vendor risk management should cover the full lifecycle: planning, due diligence, contract negotiation, monitoring, and termination.
Regulators reserve the right to examine third-party vendors directly if the relationship poses a material risk to the institution.
If you're a fintech operating through a bank partnership, this guidance matters. Your banking partner is likely subject to these rules, and they’ll expect you to align with them.
SEC and FINRA Guidance for Investment Firms
Broker-dealers, investment advisors, and other SEC or FINRA-regulated firms are expected to supervise all outsourced functions that impact compliance with securities laws. This includes vendors supporting client onboarding, portfolio reporting, cybersecurity, or communications.
Recent guidance and notices emphasize:
Maintaining written supervisory procedures that include third-party relationships.
Including vendors in business continuity and cybersecurity planning.
Monitoring third-party communications, especially if they interact with retail investors or handle disclosures.
Under new SEC cybersecurity rules, firms must now disclose significant cyber incidents, whether they originate internally or through a vendor. This adds another layer of scrutiny to third-party relationships.
CFPB and Consumer Finance Implications
The Consumer Financial Protection Bureau expects financial institutions and fintech lenders to manage their vendors in a way that prevents harm to consumers. This is especially relevant for third parties that handle marketing, servicing, or customer interactions.
CFPB guidance highlights:
Institutions are liable for unfair, deceptive, or abusive acts (UDAAPs) committed by their vendors.
Supervised entities must have systems in place to monitor vendor compliance with consumer finance laws.
Failures in oversight can result in public enforcement actions or supervision findings, even if a third party commits the violations.
If your vendor touches the customer experience through communications, fees, servicing, or data handling, you’re in scope.
Global Trends: DORA and International Developments
The European Union’s Digital Operational Resilience Act (DORA), which took effect in 2025, creates a new regulatory baseline for vendor risk management in financial services. It applies to EU-regulated entities but will also affect US-based fintechs doing business in Europe or serving EU customers.
DORA mandates:
Pre-contract risk assessments for ICT service providers.
Contractual requirements, including audit rights, data controls, and exit planning.
Ongoing monitoring of vendor performance and incident response capabilities.
Other countries like the UK, Canada, and Singapore are tightening their rules around third-party oversight, too. If you're a fintech with global operations, you'll need to make sure your vendor management approach works across different regulatory environments.
Common Compliance Risks in Vendor Relationships
When fintechs hand off operational work to outside vendors, they often pick up new compliance headaches in the process. You see these issues pop up again and again in regulatory enforcement cases, data breaches, and audit reports.
The following categories represent the most common areas where vendor relationships create exposure for regulated financial companies:
Data Security and Privacy
Vendors often have access to sensitive customer data, including personal identifiers, financial information, and transaction histories. If their systems are breached or if they mishandle access controls, it can lead to regulatory scrutiny and reputational damage.
Regulators expect financial companies to vet vendor security practices, monitor them over time, and have contractual protections in place. A weak link in your vendor’s data pipeline is still your responsibility, at least according to the regulators.
AML, KYC, and BSA Obligations
Fintechs that rely on vendors for customer onboarding, identity verification, or transaction monitoring can encounter compliance gaps if those vendors fail to meet Bank Secrecy Act (BSA) standards. Failing to detect suspicious activity or properly verify users may result in regulatory findings, regardless of whether the function was outsourced.
Vendor missteps in this area often stem from unclear roles, missing documentation, or a lack of oversight. These are preventable if you build the right controls early.
Marketing, Disclosures, and Consumer Harm
Third-party vendors sometimes handle digital marketing, customer messaging, or key disclosures. That can open the door to regulatory risk if those communications are misleading, incomplete, or noncompliant.
The CFPB and state regulators have taken action against firms whose vendors made UDAAP-triggering claims or failed to follow proper disclosure timing. If the vendor markets your product, you’re responsible for what they say and how they say it.
Operational and Business Continuity Risk
Even if a vendor is technically sound and compliant, they can still cause compliance disruption. Downtime, system failures, or poor incident response may affect your ability to meet regulatory deadlines or deliver core services to customers.
If a key vendor can’t meet service-level expectations or goes dark without warning, you may need a business continuity plan that includes them. That means monitoring their stability, not just their compliance controls.
Misconceptions That Undermine Vendor Management
Even experienced compliance teams can fall into traps when working with third-party vendors. Some assumptions seem reasonable at first, but can leave fintechs like yours exposed to regulatory, operational, and reputational risk.
These are some of the most common misconceptions and why they cause problems:
1. Big Vendor = Low Risk
Large, well-known vendors often have established compliance and security programs, but that doesn’t necessarily make them risk-free. High-profile providers have been involved in breaches, regulatory findings, and service outages. Size and brand recognition typically don’t replace the need for due diligence or ongoing oversight.
2. One-Time Due Diligence Is Enough
Reviewing a vendor’s controls at onboarding is only the starting point. Their compliance posture, ownership structure, or technology stack can change over time. Without periodic reassessments and enhanced due diligence, you can miss emerging risks that affect your own regulatory obligations.
3. The Contract Covers Everything
A signed agreement is important, but it’s not a substitute for active management. Contracts can set expectations, but they don’t guarantee execution. Without monitoring performance, enforcing obligations, and addressing issues promptly, gaps can develop, and sometimes, they may develop without immediate visibility.
4. The Regulator Will Only Blame the Vendor
Regulators make no distinction between in-house operations and outsourced ones when assigning responsibility. If your vendor fails to meet a requirement, you are still accountable. Enforcement actions and consent orders typically name the regulated entity, even when the problem started with a third party.
6 Best Practices for Vendor Compliance Management in Fintech
A strong vendor compliance management program doesn’t happen by accident. It requires a structured approach that fits your business model, risk profile, and regulatory environment. For fintechs, this is especially important because third-party relationships often involve regulated functions that sit at the core of your product.
Below are six best practices to build or strengthen your program:
1. Risk-Based Vendor Classification
Not all vendors present the same level of risk. Start by creating categories such as critical, high, medium, and low risk, based on the sensitivity of the data they handle, their involvement in regulated functions, and the potential impact of a failure.
Document these classifications and use them to guide your oversight schedule. For example, a vendor running customer identity verification may require quarterly reviews, while a vendor providing office supplies may need little more than an annual contract check.
2. Pre-Contract Due Diligence
Conduct thorough due diligence before onboarding. For critical vendors, this may include reviewing:
SOC 2 reports
Regulatory history
Security controls
Financial stability.
Ask for supporting documentation, not just verbal assurances. Depending on the service, this could include penetration test results, proof of regulatory registration, or evidence of past audit findings and how they were resolved. The goal is to spot weaknesses before they become your problem.
3. Contract Terms That Actually Mitigate Risk
Your vendor agreement should clearly define compliance expectations, reporting requirements, data protection obligations, and audit rights.
Include specifics, such as breach notification timelines, data deletion protocols upon termination, and requirements for subcontractor disclosures. Where possible, add measurable service levels like uptime percentages or response times to create accountability.
4. Ongoing Oversight and Monitoring
Once a vendor is onboarded, maintain a schedule for periodic reviews, performance tracking, and compliance checks. This can include quarterly meetings, annual reassessments, and a review of any incidents or regulatory updates that affect the relationship.
Tip: Keep records of each review, including findings and follow-up actions. These files are useful in exams and help demonstrate that oversight is continuous, not a one-time event.
5. Managing Fourth-Party Risk
Your vendor’s subcontractors can introduce hidden risks. Ask vendors to disclose their own key third parties and require them to meet your compliance standards. Where relevant, you may also include contractual language that gives you the right to review or approve critical fourth-party relationships.
This is especially important when subcontractors handle regulated functions or have access to customer data. Regly can store vendor and subcontractor disclosures in one repository, making it easier to track changes and maintain visibility across your extended vendor network.
6. Business Continuity and Exit Strategies
Plan for scenarios where a vendor fails, exits the market, or is no longer a good fit. Your plan should cover transition timelines, data migration, and customer communication strategies.
Test these plans periodically on paper or through tabletop exercises so your team understands roles and timelines if a real exit occurs. Clear termination clauses in contracts can make this process faster and less disruptive.
For fintechs that don’t have the internal bandwidth to manage all six areas, outsourcing to a team with relevant regulatory expertise, such as InnReg, can be a cost-effective option.
Tools and Frameworks to Support Vendor Oversight
Technology and structured frameworks can make vendor compliance management more efficient and consistent. Meanwhile, the right tools can help you standardize due diligence, track oversight activities, and keep documentation audit-ready without adding unnecessary complexity.
Due Diligence Checklists
A standardized checklist keeps your review process consistent across all vendors. It should cover core areas such as regulatory history, data protection measures, operational resilience, and subcontractor arrangements.
For higher-risk vendors, you can expand the checklist to include certifications, independent audit results, and background checks on key personnel. This not only keeps your process thorough but also makes it easier to show regulators that you follow a repeatable method.
Risk Scoring Models
Assigning a risk score to each vendor can help prioritize oversight efforts. Scores can be based on criteria like data sensitivity, regulatory exposure, financial stability, and service criticality.
A simple scoring system, such as low, medium, and high, can work for smaller teams, while more mature programs may use weighted scoring for a nuanced view. This allows compliance teams to focus resources where risk is highest.
Contract Review Templates
A standard contract template or checklist keeps you from missing important compliance requirements. Include things like how quickly vendors must report breaches, your right to audit them, data retention rules, and what happens when the contract ends.
Templates also make it easier to work with your legal team since everyone knows what compliance and business terms need to be covered before you sign anything.
Monitoring Dashboards and Task Systems
Dashboards make it easier to track vendor performance metrics, upcoming review deadlines, and outstanding issues. Even a well-structured spreadsheet can be effective for smaller teams.
More advanced setups may integrate with project management tools to assign tasks, set reminders, and store documentation in one place. This helps teams maintain an organized, audit-ready record of all vendor oversight activities without relying on scattered tools or manual follow-ups.
Regly combines vendor management and automated workflows in a single system, helping teams replace scattered spreadsheets with a centralized oversight hub.
What Regulators Are Focused on in 2025
Vendor compliance management is drawing more regulatory attention in 2025 than in prior years. Agencies are watching not just whether firms have vendor oversight programs, but whether those programs are risk-based, documented, and actively maintained.
Here are three focus points we can see from FINRA’s 2025 Annual Regulatory Oversight Report:
Recent Enforcement Trends
Recent enforcement actions show regulators are willing to hold financial institutions accountable for vendor failures, even if the issue originated outside the company’s direct control. Common triggers include:
Inadequate due diligence before onboarding a vendor that later failed a core compliance obligation.
Data breaches caused by vendors with weak security controls.
Misleading marketing or disclosure practices by third parties acting on behalf of a financial institution.
These cases highlight that regulators see vendor oversight as a direct extension of a company’s compliance responsibilities.
New Exam Priorities
Across agencies, vendor oversight has appeared in recent examination priorities. For example, banking regulators are checking whether vendor risk assessments are updated regularly and tied to ongoing monitoring schedules.
On the other hand, the SEC and FINRA are reviewing how firms supervise outsourced cybersecurity functions and include vendors in business continuity planning. Then there’s CFPB, focusing on how supervised entities monitor vendors that interact with customers, particularly in marketing and servicing.
In practice, this means firms should expect questions about vendor governance during both routine and targeted exams.
Increased Scrutiny of Fintech Partnerships
Bank-fintech partnerships are a particular focus area this year. Regulators have expressed concern about oversight gaps when banks rely on fintech partners to deliver regulated services. Examiners are looking closely at:
How the bank monitors the fintech partner’s vendors.
Whether the fintech has a dedicated vendor oversight program that aligns with the bank’s standards.
Contract provisions governing compliance, reporting, and termination.
For fintechs, this trend underscores the need to demonstrate robust vendor management not only to regulators but also to bank partners who are accountable under their own charters.
Final Thoughts
Vendor compliance management is a central part of how regulators judge a financial institution’s ability to operate responsibly. For fintechs, where partnerships and outsourced services are often embedded in the product itself, strong oversight is essential to controlling both regulatory and business risk.
Effective programs are typically risk-based, documented, and actively maintained. They go beyond onboarding to include contract management, regular performance reviews, and contingency planning.
For teams looking to make vendor oversight more efficient,Regly can become a centralized platform to review contracts, manage vendor documentation, and maintain audit-ready records. Explore howRegly supports vendor compliance management by centralizing processes and helping you maintain an organized view of your third-party risk landscape.
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