Just as you have to complete due diligence before you buy a home, due diligence for banking vendors can make or break a partnership. Not completing enhanced due diligence (EDD) is like buying a house sight unseen and without doing an inspection! You never know what you might find.
It only takes one cyberattack to cause serious damage to both the financial health of your bank and its reputation. That’s why cybersecurity for community banks, including proper due diligence and enhanced security measures, should be taken when evaluating vendors that provide services such as payment processing or loan origination technology.
Let’s dive deeper into EDD and why it should be a priority when it comes to cybersecurity for community banks.
What Is Enhanced Due Diligence?
Enhanced due diligence is a process that goes beyond the standard due diligence of reviewing a vendor’s track record and financial information. It involves looking at certain activities or indicators that could pose additional risk to your institution, such as:
- Strategies and goals
- Legal and regulatory compliance
- Financial condition
- Business experience and reputation
- Risk management
- Information security
When evaluating a vendor, it’s essential to be mindful of red flags that could indicate potential risk.
Let’s work with the house analogy a bit more. If you have an inspection done and the results come back showing there are cracks in the foundation, you’re able to make a more informed decision about going forward with that property.
If you find a red flag about a potential vendor, you can make a better decision about partnering with that vendor or even look for a different one. Cybersecurity for community banks relies on a clear EDD policy.
Who Needs to Do Enhanced Due Diligence?
Any bank or financial institution that works with vendors should consider doing enhanced due diligence. This is especially true for community banks, which are often at higher risk of cyberattacks due to their smaller size and limited resources.
To protect customer information and ensure regulatory compliance, your institution needs a comprehensive security program in place. Performing a proper EDD on vendors will help in that security program.
5 Ways Enhanced Due Diligence Helps You Eliminate Risk
The bottom line of enhanced due diligence is finding ways to protect your customers. Here are the most important benefits of making EDD a part of your cybersecurity.
1. Improved Security
Enhanced due diligence allows you to identify potential security vulnerabilities and take steps to mitigate them. This could include additional controls such as encryption or multi-factor authentication.
2. Increased Transparency
Performing enhanced due diligence helps create a more transparent relationship with your vendors, which improves communication and trust between the two parties.
3. More Comprehensive Assessments
EDD helps you go beyond the standard assessment process and get a snapshot of potential risks that may not be visible on the surface.
4. Easier Compliance
With enhanced due diligence, it’s easier to stay compliant with federal regulations such as state laws.
5. Better Reputation
Enhanced due diligence helps protect your banking institution’s reputation by reducing risk and ensuring that you’re taking all the necessary steps to keep customers’ data safe.
Are There Specific Enhanced Due Diligence Requirements for Banks?
Yes, according to the Federal Financial Institutions Examination Council (FFIEC), when it comes to enhanced due diligence, banks should:
- Perform due diligence on all third-party vendors
- Conduct regular risk assessments and monitor ongoing activities with the vendor
- Review contracts and agreements related to the vendor
- Monitor customer activity related to the third-party vendor
By following these guidelines, banks can ensure that they’re doing all they can to protect customer information and maintain a secure banking environment.
Enhanced due diligence is an important part of any bank’s security program, so make sure it’s on your list of priorities. With the right processes in place, you can eliminate potential risks and improve the cybersecurity of your community bank.
Are You Ready to Get Started on Enhanced Due Diligence?
RESULTS Technology specializes in cybersecurity for community banks nationwide to help them stay compliant and secure. Our team of dedicated professionals will provide the training, tools, and resources you need to keep your community bank secure so that you can keep your customers safe and protect your reputation.
Schedule a call today to learn more about how we can help!