Third-Party Risk Management: What It Is And How To Build A Resilient Program

Third-party risk management (TPRM) is the structured process of identifying, assessing, and mitigating risks posed by external vendors, suppliers, partners, and service providers.

These third-party relationships are essential for delivering services, scaling operations, and driving innovation - but they also create additional layers of risk that are outside your direct control. 

Vendor risk - also known as supplier or third-party risk - refers to the potential for operational disruption, data breaches, financial losses, compliance violations, or reputational harm stemming from a third-party’s actions or failures.

And in today’s complex digital and regulatory environment, these risks are growing fast. 

Without a formal TPRM framework, organisations are exposed to inconsistent practices, poor visibility, and an inability to act quickly when things go wrong.

That’s why TPRM has become a strategic priority - not just a compliance requirement. 

In industries like financial services, insurance, and banking, where operational resilience, customer trust, and regulatory scrutiny are paramount, third-party risk management is no longer optional. It’s central to business continuity and competitive advantage. 

In this article, we’ll define third-party risk management, explore the TPRM lifecycle, highlight tools and frameworks, and provide best practices to help you manage third-party risks effectively in 2025 and beyond. 

Read the full guide: What Is Third-Party Risk Management 

A third-party refers to any external organisation that provides goods, services, or systems to your business.

This includes suppliers, vendors, service providers, contractors, consultants, software platforms, and outsourced partners.

These entities are not part of your internal operations - but they often play a critical role in helping you deliver products, maintain services, and meet customer expectations. 

In the context of third-party risk management (TPRM), a third-party introduces potential risks that your organisation must actively manage.

These can include cybersecurity threats, compliance failures, financial instability, and operational disruption. 

Understanding who qualifies as a third party - and the nature of the services they provide - is the first step in building a strong, proportionate third-party risk management process.

Whether you're working with IT providers, facilities teams, logistics firms, or regulated partners, every relationship should be evaluated through a third-party risk lens. 

Third-party risk management (TPRM) is no longer just a compliance box-tick - it’s a strategic necessity. 

As businesses increasingly rely on external vendors, cloud platforms, and outsourced services, their exposure to external risk multiplies.

When those suppliers falter - through data breaches, service outages, ethical failings, or financial collapse - the consequences don’t stay neatly contained. Your organisation bears the reputational, regulatory, and operational fallout. 

That’s why effective TPRM is so important. It protects more than your contracts - it protects your brand, your customers, and your ability to operate in a volatile, interconnected world. 

60% of security breaches now involve a third party 
– Ponemon Institute 

Failing to manage supplier and third-party risk can lead to compliance breaches, loss of customer trust, and major disruption - especially in sectors like financial services, insurance, and anything utilising critical infrastructure where accountability is shared. 

Learn more about the strategic importance of TPRM: Why TPRM Matters 

Third-party risk management covers a wide range of exposures. Understanding the most common types of third-party risk is the first step to protecting your organisation. 

• Cybersecurity risk 
  When a third party has access to your systems or data, a breach on their side can directly compromise your security, and allow malicious actors into your own systems. 

• Operational risk 
  Disruptions like delays, outages, or over-reliance and concentration on a single supplier can cause critical service interruptions. 

• Financial risk 
  Supplier insolvency or poor financial health can affect their ability to deliver, putting your operations at risk. 

• Compliance risk 
  Regulatory violations by a third party can expose your organisation to fines, investigations, or audit failure. 

• Reputational risk 
  In addition to all of the above, unethical practices, negative press, or social media scrutiny linked to a supplier can damage your brand. 

• Sustainability risk 
  Environmental, social, and governance (ESG) issues - like modern slavery or carbon footprint - are under growing scrutiny. 

Understanding these risk types helps you design a supplier risk assessment that reflects real exposure - not just contractual obligations. 

Want to explore these in more detail? 
See our full breakdown of Third-Party Risk Types for more. 

For suppliers, the TPRM process can often feel like a burden - especially when expectations aren’t clear or consistent. Common concerns include: 

• Repetitive data requests 

• Long onboarding cycles 

• Poor visibility into next steps 

• Misalignment on priorities 

Making the process easier for suppliers can significantly improve response quality, speed, and risk transparency. 

See how to build supplier-friendly TPRM: What Suppliers Need from TPRM 

Third-party risk management starts with a structured process. To manage third-party risk effectively, organisations need to: 

• Identify third-party relationships 
  Clearly define your vendors, partners, and suppliers that are in scope, and be explicit about who will not be included. 

• Classify by risk tier 
  Segment suppliers based on criteria that matter to your business such as service type, access to sensitive data, contact with your customers or regulatory exposure. 

• Assess risks  
  Evaluate each third-party using a consistent supplier risk assessment based on likelihood and impact. 

• Monitor performance 
  Use tools and dashboards to track compliance, performance, and emerging risks over time. 

• Implement controls and reviews 
  Mitigate risk with SLAs, regular audits, and proportionate oversight tailored to each supplier tier. 

This high-level process for risk management ensures that third-party risk is handled with consistency and confidence. 

Want the full step-by-step breakdown, including tools and mitigation strategies? 
 
Read our complete guide on How to Manage Third-Party Risk for everything you need to implement a scalable, resilient third-party risk management framework.

TPRM works best when it’s embedded throughout the supplier lifecycle. That means building in controls and reviews at every stage: 

1. Planning 

2. Due Diligence 

3. Contracting 

4. Monitoring 

5. Offboarding 

These stages ensure a consistent approach from first contact to final exit. 

Read the lifecycle breakdown: Five Stages of Third-Party Risk Management 

Once you’ve assessed third-party supplier risks, mitigation is where it all comes together. This can include: 

• Stronger contracts 

• Risk transfer mechanisms 

• Dual-sourcing and diversification 

• Inventory planning 

• Supplier development 

Knowing how much to do - and for whom - is key to a proportionate mitigation strategy. 

Review mitigation strategies: Mitigating Supplier Risks

Modern TPRM programmes drive more than just risk reduction. They enable faster decisions, build trust with regulators, and reduce internal admin and duplication. 

When backed by the FSQS community model, you also benefit from shared supplier assurance - saving time and effort for everyone involved. 

Explore the full value of TPRM: Strategic Value of TPRM

Bringing TPRM to life means moving beyond policy into practice. That includes: 

• Getting buy-in across teams 

• Defining risk appetite 

• Building consistent frameworks 

• Embedding into procurement workflows 

• Leveraging shared assurance tools like FSQS 

A scalable programme is built from the ground up - with people, process, and platforms aligned. 

Follow the full implementation roadmap: How to Build a TPRM Program 

When managing third-party risk, it’s important to understand exactly who you’re dealing with - and how far your risk exposure extends. 

• Third-party risk: A direct supplier, vendor, or service provider your organisation contracts with. This could include IT providers, logistics firms, marketing agencies, or consultants. 

• Fourth-party risk: Any subcontractor or downstream partner your third-party relies on to deliver services to you. These are not contracted by you directly - but they can still pose significant risks to your operations or compliance posture. 

While most TPRM programs focus on direct suppliers, there’s growing recognition of the need to look deeper into the supply chain. Fourth-party risk is becoming a key concern in highly regulated sectors like financial services, where systemic risk, cybersecurity exposure, and ESG accountability require visibility beyond immediate vendors. 

By extending visibility into fourth parties, organisations can strengthen resilience, reduce concentration risk, and meet rising regulatory expectations. 

Explore the full breakdown: Third vs Fourth Party Risk 

To get real value from your TPRM tech stack, look for: 

• Breadth of risk coverage 

• Audit trails and document management 

• Procurement system integrations 

• Dashboards and alerts 

• Supplier assurance community access (like FSQS) 

The right platform doesn’t just store data - it powers better decisions. 

Explore platform features to look for: Choosing a TPRM Platform 

In financial services and insurance, compliance isn't just a best practice - it’s non-negotiable. TPRM helps demonstrate: 

• Evidence of due diligence 

• Consistent supplier decisions 

• Internal control effectiveness 

The FSQS model is already aligned with many regulated sector expectations, helping you streamline audit and regulatory reviews. 

Learn more about FSQS for financial services: Compliance for Regulated Sectors 

As supply chains become more complex and heavily regulated, the way organisations manage third-party risk is evolving rapidly. The next few years will bring new pressures on procurement and compliance teams - and success will depend on building faster, smarter, and more scalable third-party risk management frameworks.

Key trends shaping the future include:

1. Accelerating Procurement Cycles

Organisations are under pressure to onboard suppliers faster while maintaining rigorous risk checks. Buyers will increasingly turn to shared assurance communities like FSQS to access verified supplier data, reducing duplication and speeding up decision-making.

2. Responding to Emerging Regulation

New regulations across financial services, Sustainability reporting, and data security are raising the bar for compliance. Having a structured, auditable third-party risk management process will become essential to demonstrate due diligence and operational resilience.

3. Scaling TPRM Without Scaling Headcount

Risk and procurement teams are being asked to deliver more value with fewer resources. The focus will shift to smarter ways of managing supplier risk at scale - using shared data, streamlined onboarding, and cross-functional collaboration to free up capacity for value-add activities.

4. Increased Focus on Sustainability and Ethical Standards

Environmental, social, and governance (ESG) disclosures are becoming part of procurement's critical path. Buyers will need greater transparency into supplier practices and supply chain impacts from the outset of onboarding.

5. Managing AI-Related Risk

While AI adoption grows, so do concerns about data privacy, cybersecurity, and regulatory compliance. TPRM programmes will need frameworks to assess and monitor AI-related risks introduced by suppliers and partners.

Forward-thinking organisations are already investing in scalable frameworks, reliable assurance platforms, and cross-industry collaboration to stay ahead of these shifts - without adding unnecessary complexity.

Explore the evolving landscape:

Gartner Predicts 2025 – Procurement & Risk Trends

When done right, it strengthens your operational resilience, improves decision-making, and keeps your business ahead of regulatory and reputational risks. 

Whether you're building your third-party risk management framework from scratch or evolving an existing model, the FSQS community can help you accelerate the process - with shared supplier data, structured assurance workflows, and expert-led support. 

Be sure to bookmark this page for future updates and explore our related TPRM content across the site. 

• See how FSQS simplifies supplier risk management 
• See how we’ve helped Lloyds Banking Group with their supplier due diligence for over a decade
• Learn more about FSQS in the UK
• Meet our FSQS buyers 

When risk is high, clarity wins. FSQS helps you cut through the noise, stay compliant, and build a more resilient supply chain - with less effort and stronger third party risk management at the core.