What Are the 5 Stages of Third-Party Risk Management?

In this guide, we’ll break down the five core stages of a third-party risk management framework, helping you understand how to embed controls across the entire TPRM process - from the moment you identify a potential supplier to the point the relationship ends. 

The five stages of third-party risk management are: 

Planning, Due Diligence, Contracting, Monitoring, and Offboarding. 

Each stage builds on the last, ensuring a consistent, repeatable approach to managing third-party risk from first contact to final exit. 

In highly regulated sectors like financial services, banking, and insurance, these stages are essential for maintaining compliance, protecting operational resilience, and safeguarding customer trust. 

Stage 1: Planning  

Before onboarding any supplier, it’s vital to define the scope and objectives of your third-party risk management framework. This stage sets the foundation for proportional, risk-based decision-making. 

Key actions: 

• Define your risk appetite and regulatory obligations (e.g. FCA, PRA, DORA).

• Identify suppliers that are critical to operations or regulated activity.

• Prioritise suppliers based on data access, service criticality, or customer impact.

• Engage internal stakeholders early, including procurement, risk, compliance, and IT.

This stage is essential for laying the groundwork for a scalable TPRM framework, ensuring early visibility into third-party risks before they escalate. 

Why it matters: 
By clarifying scope upfront, you avoid wasting resources on low-risk vendors and focus attention where risk exposure is highest. For financial institutions, this is key to ensuring operational resilience and regulatory confidence. 

Stage 2: Due Diligence

This is where your third-party risk management framework moves into action - enabling procurement, compliance, and risk teams to carry out consistent, evidence-based assessments that evaluate a supplier’s capabilities, regulatory alignment, and overall third-party risk profile. 

Key actions: 

• Use structured third-party risk assessments tailored to the service provided.

• Collect evidence such as certifications, audit reports, sustainability disclosures, and financial statements.

• Verify cybersecurity measures, especially for suppliers handling customer or payment data.

• Compare supplier responses against industry benchmarks, such as ISO Certificates.

Platforms like FSQS simplify this third-party risk management process by providing access to a pre-validated supplier community, reducing duplicated assessments and accelerating onboarding timelines. 

Stage 3: Contracting 

Once suppliers are selected, contracts become your first line of defence against third-party risk. This stage ensures responsibilities are clear and that regulatory expectations are built into the relationship from day one. 

Key actions: 

• Include service-level agreements (SLAs) for performance and compliance.

• Build in exit clauses, fallback arrangements, and penalties for non-performance.

• Define data protection obligations aligned with GDPR and DORA. 

• Set clear reporting expectations for incidents and emerging risks.

Why it matters: 
For regulated firms, contracts provide a critical audit trail demonstrating that third-party risks are being actively managed via TPRM. Well-structured agreements also reduce disputes and improve accountability when issues arise. 

Stage 4: Monitoring 

Monitoring is one of the most critical stages of third-party risk management - particularly in highly regulated industries - because third-party risk isn’t static. It evolves. Without ongoing oversight, even previously low-risk suppliers can become points of vulnerability. 

That’s why third-party risk management doesn’t stop at onboarding. This stage is about continuous monitoring - tracking supplier performance, identifying emerging third-party risks, and ensuring continued compliance across the lifecycle. 

Key actions: 

• Regularly review supplier KPIs like delivery times, incident reports, and audit outcomes.

• Reassess high-risk suppliers more frequently than low-risk ones.

• Monitor for emerging threats, such as cybersecurity vulnerabilities, sustainability violations, or financial instability.

• Use dashboards and automation to centralise insights and identify red flags early.

By keeping your third-party risk management framework dynamic, you ensure it adapts to new challenges and meets evolving regulatory expectations. 

Platforms like FSQS make continuous monitoring more efficient by consolidating supplier assurance data into a single source of truth, reducing duplication and enabling faster, evidence-based decisions. 

Stage 5: Offboarding 

Third-party risks don’t stop when contracts expire. Proper exit planning, in line with your TPRM policies, protects data, continuity, and regulatory compliance. 

Key actions: 

• Ensure data and systems access are revoked.

• Recover company-owned equipment and confidential information.

• Transition services to alternative suppliers or internal teams without disruption.

• Conduct an exit review to capture lessons learned and inform future decisions.

Why it matters: 
Poor TPRM offboarding processes can lead to data leaks, service gaps, and compliance breaches - especially for suppliers with access to sensitive financial systems or customer data. 

The Value of a Lifecycle Approach 

Managing third party risk across these five stages is the foundation of any robust third-party risk management framework. It ensures a structured, repeatable approach to protecting your organisation. 

Each stage builds on the last to: 

• Identify third-party risks earlier in the lifecycle.

• Tailor due diligence based on exposure.

• Maintain audit-ready compliance with regulators.

• Strengthen operational resilience and customer trust.

Platforms like FSQS make embedding these five stages easier by centralising supplier assurance data, standardising assessments, and reducing duplication - helping financial institutions focus on managing third-party risk, not chasing paperwork.