A Playbook for Third-Party Exits
3/13/2025
Last year’s CrowdStrike outage underscored the risks financial institutions face when critical third-party providers experience disruptions. While banks invest significant effort in selecting and managing vendors, the end of a third-party relationship—whether planned or unexpected—can introduce operational, financial, and regulatory challenges.
Having a well-defined third-party exit strategy is essential for mitigating these risks. A paper by RMA's Third-Party Risk Management Roundtable working group explains how banks can transition if a vendor relationship becomes unsustainable due to performance failures, regulatory concerns, strategic shifts, or other causes. Here are key takeaways:
Build the Exit Strategy Before You Need It
Exits can happen suddenly. Banks should incorporate exit provisions into third-party contracts from the outset, including wind-down triggers; notice periods; transition support; and clearly defined responsibilities for data return, system access termination, and any financial or legal obligations upon exit.
Define Key Exit Triggers
Banks should clearly document events that could require exiting a third-party relationship, such as:
- Financial distress at the third party
- Regulatory noncompliance or legal violations
- Repeated service failures or missed service level agreements
- Reputational risk tied to the vendor
- Changes in strategy that render the relationship obsolete
Assign Roles and Responsibilities
A successful exit requires coordination across departments. Ensure clear responsibilities for business leadership, procurement, third-party risk management, IT, legal, and operational risk teams.
Plan for Transition Risks
Exiting a vendor relationship can expose banks to security, financial, and operational risks. Consider:
- Data security: How will the third party return or destroy sensitive data?
- Operational continuity: Are there backup providers or in-house alternatives?
- Reputational impact: How will customers be informed of changes?
Test and Update the Plan Regularly
Periodic scenario testing ensures the strategy remains relevant and effective. Use key risk indicators to track critical vendors and update exit plans as needed.
Final Thought
A well-executed exit strategy turns a potential disruption into a manageable transition. By preparing in advance, banks can avoid unnecessary risk and ensure continuity when third-party relationships end.
