What are the top challenges in vendor risk management for regulated industries?

In today’s interconnected business environment, organizations in regulated industries face increasing pressure to manage complex vendor ecosystems. With the global vendor risk management (VRM) market expected to reach USD 24,953.3 million by 2030 (15.2% CAGR), effective VRM is now mission-critical.

For banks, fintech companies, insurance providers, and healthcare organizations, the stakes couldn't be higher. A single vendor security incident can cascade through their entire ecosystem, potentially exposing millions of customer records and triggering massive regulatory penalties. Understanding and addressing these vendor risk management challenges isn't just about compliance; it's about business survival in an increasingly digital world.

What Is Vendor Risk Management and Why Is It Harder for Regulated Industries

Vendor risk management (VRM) is the structured process of identifying, assessing, monitoring, and mitigating risks arising from third-party relationships.

In regulated industries, VRM is harder because organizations must meet strict compliance requirements, often extending to their vendors. A bank partnering with a fintech provider or a healthcare firm using cloud storage inherits all associated regulatory obligations.

Why vendor risk management is important in regulated industries becomes evident when you consider that 15% of data breaches in 2023 were linked to third parties or suppliers, according to Verizon's 2024 Data Breach Investigations Report. For regulated industries, these breaches don't just mean financial losses; they can trigger regulatory investigations, massive fines, and irreparable damage to customer trust.

The Most Common Vendor Risk Management Challenges

Challenge 1: Managing Increasing Vendor Volume and Complexity

Modern organizations rely on thousands of vendors, 60% work with over 1,000 third parties, creating strain on risk teams. Without automation, organizations face inconsistent standards, fragmented vendor oversight, and rapidly expanding vendor ecosystems with multiple sub-vendors.

Challenge 2: Difficulty Maintaining Accurate and Up-to-Date Vendor Data

Vendor records often become outdated due to constant changes in contracts, access levels, mergers, or shifts in security practices. Many organizations maintain incomplete or inconsistent inventories, hindering reliable risk analysis.

Challenge 3: Inefficient or Incomplete Vendor Due Diligence Processes

Due diligence is often either too basic or too time-consuming. Common issues include:

• Superficial assessments based on self-reported questionnaires
• Lack of verification
• One-size-fits-all evaluations
• Oversight is limited to direct third-party risks

Challenge 4: Overreliance on Manual Vendor Security Questionnaires

Manual questionnaires are slow, inconsistent, prone to vendor fatigue, and offer only a single point-in-time view. They fail to capture evolving vendor risk profiles.

Challenge 5: Limited Visibility Into Vendor and Fourth-Party Risks

Most organizations lack insight into vendor dependencies. Research shows:

• 50% have indirect ties to 200+ breached fourth-party vendors
• Only 10% perform direct fourth-party assessments

This limited visibility creates significant security blind spots across the extended supply chain.

Challenge 6: Inconsistent or Unstructured Continuous Monitoring

Monitoring often stops after onboarding. Common problems include reactive reassessments, irregular schedules, and limited automated monitoring, leaving organizations unaware of emerging vendor issues.

Challenge 7: Regulatory and Compliance Burdens for High-Risk Vendors

Regulated industries must manage multiple frameworks—GDPR, CCPA, DPDP, OCC, FDIC, and more.

Challenges include:

• Meeting evolving requirements across regions
• Verifying vendor compliance beyond self-attestations
• Maintaining detailed audit documentation

Challenge 8: Slow or Inadequate Vendor Remediation and Follow-Up

Even when risks are identified, 74% of organizations struggle to resolve audit findings promptly. Barriers include unclear ownership, limited leverage over vendors, poor follow-through, and resource constraints.

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How Redacto's Vendor Risk Management Solution Addresses These Challenges

Redacto’s Intelligent Vendor Risk Management Solution uses AI, automation, and regulatory expertise to streamline traditional VRM processes.

Automated Risk Assessment and Monitoring

Redacto automates vendor information collection, workflows, and assessments, eliminating bottlenecks and helping teams scale oversight across thousands of vendors.

Third-Party Risk Assessment Integration

The platform incorporates external risk assessment data, providing deeper insights into security postures and addressing the lack of visibility across third- and fourth-party ecosystems.

Real-Time Risk Monitoring and Alerts

Through automated performance and risk monitoring (SLAs, KPIs, risk changes), Redacto provides real-time alerts that help organizations address emerging threats before they escalate.

Regulatory Compliance Management

With templates and mappings aligned to GDPR, CCPA, and DPDP, Redacto simplifies compliance documentation, ensures standardized controls, and supports regulatory audits.

Conclusion

Vendor risk management challenges for regulated industries continue to grow in scale and complexity. As vendor ecosystems expand and regulations tighten, organizations must move beyond manual processes to maintain compliance and protect customer data.

With the average data breach costing $4.88 million in 2024, robust VRM is no longer optional. Automated solutions like Redacto provide the scalability, visibility, and continuous monitoring required to reduce risk and meet regulatory expectations.

Ready to transform your vendor risk management approach? Contact Redacto today to book a demo and learn how our intelligent platform can help your organization overcome these challenges. 

Frequently Asked Questions

What is vendor risk management, and why is it important for regulated industries?

VRM identifies and manages risks from third-party vendors, ensuring regulated industries meet strict security and compliance obligations.

How many vendors does the average organization work with?

According to Gartner research, the median organization contracts with 5,000 third parties, with 60% of organizations working with more than 1,000 third-party vendors. 

What are fourth-party risks, and why should organizations care about them?

These are risks from your vendors’ vendors, often unseen but impactful, with many organizations indirectly linked to hundreds of breached fourth parties.

What are the biggest challenges in vendor risk management for financial services companies?

They must meet multiple regulatory requirements, monitor large vendor ecosystems, assess fourth-party risks, and maintain extensive audit documentation.

How can organizations improve their vendor risk management processes?

Through automated assessments, continuous monitoring, standardized controls, and integrated risk intelligence platforms like Redacto.

How often should organizations assess vendor risks?

Low risk: every 1–2 years; moderate: annually; high risk: every 6–12 months, supplemented with continuous monitoring.