Moody's says that while this approach can increase operational effectiveness and competitive advantage, it also carries a number of serious dangers, such as financial, legal, operational, and strategic challenges. Banks must use third-party risk management (TPRM) to stay in control and adhere to strict legal and regulatory requirements.

Banks can identify, evaluate, monitor, and reduce these risks with the use of effective TPRM. Protecting against vulnerabilities like as supply chain interruptions, cybersecurity attacks, and compliance risks associated with strict rules like the GDPR, PSD2, and soon-to-be PSD3 requires it. A strong TPRM program supports sustainable growth by guaranteeing a bank's compliance and resiliency.

Anti-bribery and anti-corruption (ABAC) measures are essential in addition to TPRM. These measures protect against harm to one's reputation and legal standing, which is important in a field where credibility is valued highly. Robust ABAC frameworks assist banks in avoiding unethical and unlawful behavior in both their internal operations and their dealings with outside parties. This entails carrying out due diligence and making certain that partners follow the law and ethical guidelines.

Furthermore, strong ABAC controls promote an honest and open attitude throughout the banking industry, going beyond simple compliance requirements.

Moody's recommends the following 12 recommended practices for putting strong TPRM and ABAC controls in place:

1. Create a thorough TPRM framework that is in line with the bank's business plan and risk appetite, and have the board accept it.
2. To evaluate the many inherent risks, conduct comprehensive risk assessments both before and during third-party partnerships.
3. Improve the due diligence procedures used to assess the operational, financial, and regulatory compliance of possible third-party partners.
4. Clearly define roles, duties, and expectations for compliance in the contract.
5. Make sure third-party interactions are adhering to legal and regulatory requirements by keeping a close eye on them.
6. To successfully manage and track third-party risks, retain internal knowledge.
7. Use blockchain and artificial intelligence (AI) to improve and automate risk management processes.
8. Provide strong reporting systems to notify the board and senior management about the performance and risks associated with third parties.
9. To guarantee the continuation of vital third-party connections, prepare for emergencies.
10. Give data security and privacy top priority, particularly when third parties are handling consumer data.
11. Provide personnel engaged in third-party risk management with frequent training to make sure they are knowledgeable about best practices and all applicable regulations.
12. To adjust to new risks and changes in regulations, the TPRM framework should be continuously improved.

By putting these ideas into practice, banks may improve their overall protection against outsourcing risks related to vital activities and services while simultaneously strengthening compliance.