For many years third-party risk was considered as just a procurement or compliance matter and not a priority for leadership teams. Vendors were onboarded, documents were collected, contracts were reviewed and the process was considered complete. That approach may have worked well where outsourcing was limited, and vendor dependencies were relatively simple. However, in today’s business environment, those assumptions no longer hold true. Increased outsourcing led board to have increased control over support technology, data handling, customer delivery, logistics, compliance and even strategic growth.

In India this change is noticeable. Now, vendors are central to operational continuity, staying safe online, protecting data, customers experience, service delivery and building trust in the market. The primary risk is not whether a vendor has been empanelled or whether a due diligence checklist has been completed. The real risk is whether the organisation understands which third-party relationships can disrupt operations, expose sensitive data, create regulatory breaches or damage trust. In such an environment, third-party risk is no longer an external issue. The question is whether management can see it clearly considering it has now come closer to the boardroom.

Why the Regulatory Environment Has Raised the Stakes

Related Read: Regulatory Compliance Fatigue: How to Simplify Without Compromising

The regulatory environment has also changed the way organisations must look at third parties. Onboarding often limited to onboarding files, contractual clauses and periodic reviews is the thing of past. Now it is all about showing that you have a firm grip on the most important dependencies. Regulators, investors and boards increasingly expect organisations to demonstrate that vendor risk is understood, monitored and escalated before it results in failure.

In the Indian context, three developments make this shift especially important.

  • For regulated entities, the Reserve Bank of India has set a higher standard for outsourced functions. In its 2023 directions, which cover IT outsourcing and the overall technology governance framework, it has made it quite clear that simply outsourcing won’t dilute accountability. Its directions on IT outsourcing and technology governance require boards and senior management to remain responsible for governance, risk assessment, due diligence, monitoring and continuity of material outsourced services. A vendor may perform the service, but the institution still owns the risk.
  • The new DPDP law has turned vendor oversight into a data governance problem. If a third-party service provider mishandles personal data, the impact is not limited to the service provider. It can affect the organisation that appointed it, the customers whose data is involved and the trust built over time.
  • Board-level risk assessment has also become wider. Third parties now need to be assessed not only for delivery capability, but also for cybersecurity, sanctions, corruption risk, concentration exposure, resilience and ESG concerns. A fragmented review may satisfy internal process, but it may not protect the organisation.

Why Third-Party Risk Management, KYC, and Financial Crime Controls Are Converging

When concerned with Third party risk management, a change observed by management is that there is a convergence in Third-Party Risk Management, KYC, and financial crime controls. Traditionally, vendor risk teams focused on operational, contractual, and cyber exposure, while KYC and AML teams focused on customers, ownership and suspicious activity but such practice may prove to be inefficient soon. Organisations are finding that their operational, regulatory, cyber and financial crime risks are becoming more connected, all because of third parties.

Organisations in such a complex business environment do not operate only through customers, vendors and employees. They operate through customers, distributors, service providers, call centres, technology partners, consultants, subcontractors and supply chain teams. A risk may enter the organisation through any of these relationships. A small vendor with access to sensitive systems, a distributor with opaque ownership, or a subcontractor linked to a sanctioned party can create exposure far beyond its contract value. Checking into sanctions, looking into negative news stories and reviewing who receives help from the company are no longer optional practices reserved for a handful of companies, they are become essential for good business management.

Related Read: From Watchdog to Co-pilot: Internal Audit’s New Role

This is where Ultimate Beneficial Ownership checks become important. The name appearing on the contract is not always the full answer. Such transactions are enveloped in countless layers of protection. The real risk may sit behind layered shareholding, related-party arrangements, political exposure or cross-border structures. A mature third-party risk programme does not stop at collecting documents. It asks a more difficult but necessary question such as whether we truly know who we are depending on and what that relationship might expose us to.

What the Board Must Ask of Management

In most of organisations, third party risk management is not ignored, but it is highly fragmented and lacks independent scrutiny beyond what vendors self-report. Each team is looking at just a part of the picture but only few in the leadership can see the complete picture. It gives the feeling of being in control of the vendor onboarding process while not mitigating the actual risks

This is where the role of the board becomes important. The board does not need approval of every vendor, involve itself in operational monitoring or check every checklist for every vendor. This involves a more connected approach beyond questionnaires and regular checks and includes clearer risk-based onboarding, ranking of third parties’ importance, control over cross-team information sharing and focusing on potential problem-causing third parties. The value of third-party risk management is not in the number of questionnaires completed, but in the number of surprises avoided.

Practical Agenda for Boards, CEOs, and CFOs

  1. Boards should assess third parties in a new way, focusing on how they affect our business, not just how much they cost. Sometimes, the most important vendors could compromise sensitive data, customer service, legal standing or make us too dependent on them.
  2. Let’s gather all the assessments so we have a complete overview. In an ideal situation, leaders should not juggle between procurement files, cyber reviews, legal documents and compliance checks to understand what’s happening with our vendors. We should make sure the risk is easy to see and understand, so management and the board can quickly identify any emerging issues, such as becoming too reliant or having too many risks.
  3. Ask for ongoing monitoring, not just yearly reviews. Yearly reviews might not catch the most important vendors. Management should keep their risk assessments up to date based on real events, like cyber problems, control failures, bad news, ownership changes or operational issues.
  4. Talk about data, how are financial crime risks managed as a team. A vendor might be great at operations, but they could still be risky because they do not have strong privacy controls, unclear ownership, sanctions problems, bribery risk or bad governance. These risks often happen together, so it’s important to have experienced people looking at them all together.
  5. Plan for leaving and keeping good relationships with our most important providers. Being resilient means picking the right partner and knowing how to handle problems, trouble or when things get riskier.

Conclusion

Related Read: India’s DPDP Act: Impact on Business Operations

Third-party risk has moved from the background of procurement and compliance into the centre of governance. The question for boards is no longer whether vendors create risk. They clearly do. The more important question is whether the organisation has enough visibility, discipline and foresight to identify which third-party relationships can create material exposure before that exposure becomes a crisis.

Why Choose Ascentium India?

At Ascentium India, we work with boards, audit committees and leadership teams to strengthen Third-Party Risk Management frameworks and improve visibility over critical vendor relationships. Our focus is not only on process compliance, but on helping organisations build practical governance that supports resilience, trust and better decision making. Our risk advisory and governance services support organisations in designing risk-based frameworks for vendor onboarding, due diligence, beneficial ownership checks, compliance review and ongoing monitoring. With Ascentium India’s end-to-end approach to governance, risk and compliance, organisations can move beyond checklist-based vendor reviews toward a more disciplined and forward-looking third-party risk model. To learn more about our services, please email us at in-info@ascentium.com or reach out to us via WhatsApp at (+91) 77380 66622.

Authored by:

Brahmadutt Kulkarni | Risk Advisory

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