Securing Financial Institution Supply Chains: Identifying and Fixing Weak Links

Supply chain security, or third‑party risk management, is a top priority for CISOs around the globe, and financial security leaders are feeling the most intense pressure. Third‑party technology is now the fastest route into a bank, and recent reports show the share of incidents involving third parties has nearly doubled year‑on‑year. As a result, supply chain security now dominates financial sector risk, with external vendor resilience just as critical as internal cybersecurity. For financial institutions, outages and data loss linked to third parties are increasingly resulting in regulatory events. With direct implications for brand trust, investor confidence, and compliance, financial supply chain security is also fast becoming a board‑level issue.

Key Takeaways:

• Third-party vendors were responsible for 30% of all data breaches in 2025, with financial institutions among the most targeted. Visibility gaps, vendor consolidation, poor third-party security hygiene and operational resilience, AI-powered threats, and regulatory complexity have all conspired to create the perfect environment for escalating supply chain risk.
• From mapping critical vendors and dependencies to employing vendor risk scoring, testing vendor resilience, and strengthening contractual controls, much can be done to mitigate supply chain cyber risk before it’s too late.
• Use of a cryptographic security platform with complete at-a-glance supply chain visibility lets CISOs quickly and easily identify potential supply chain vulnerabilities, prioritize patches and updates, assess cyber risk posture, proactively mitigate cyber threats, and maintain compliance.

Third-Party Vendors: The Hidden Cyber Fault Line in Financial Services

According to the Verizon Data Breach Investigation Report, 30% of all data breaches in 2025 were attributable to third parties – almost twice as many as the year before. While that number may seem astounding, the issue is even more pernicious in financial services. The U.S. Federal Reserve in its paper Cyber Vulnerabilities at Large US Financial Institutions and Their Third-Party Service Providers found that approximately 55% of third-party financial services providers fall into the “high-risk region” in terms of cybersecurity. Indeed, the Fed refers to third-party vendors as the hidden cyber fault line within the financial system. Also, a scenario analysis of catastrophic cyber events revealed that the losses from potential incidents that target third-party service providers are up to 66% higher for banks than routine cyber incidents, largely driven by business interruption. Ransomware, credential theft, and software vulnerabilities are the most common attack vectors in vendor-related incidents.

One of the more notorious cyber incidents linked to a third-party vendor in financial services is the MOVEit Transfer Vulnerability Exploit. This breach resulted in the data theft of personally identifiable information (PII), financial records, and internal documents from 2,700+ entities including several financial institutions and pension funds, resulting in losses of more than $12B. Two of the companies ensnared in the MOVEit cyberattack were payment processing giant Fiserv and its rival Fidelity National Information Services, which further cascaded the impact across multiple regional banks and credit unions.

Plus, as the CrowdStrike outage in July 2024 highlighted, third-party risk extends beyond just cyber. The company’s faulty software update impacted financial services around the world, disrupting online banking, ATMs, payment systems, and even stock exchanges.

Why Are Financial Institutions So Vulnerable to Third-Party Risk?

As a primary target of bad actors, financial institutions have long made internal cybersecurity a top priority. One of the inadvertent results of such efforts is that third-party vendors often remain the proverbial weak link in the supply chain, attracting the attention of cybercriminals to gain easy access – and not just to one target, but to many at once. So, why are financial services so vulnerable?

One of the primary reasons is that many financial institutions still do not have a continuous centralized inventory of vendor software and cloud dependencies, and this lack of visibility hides systemic risk. Plus, many third parties have relatively poor security hygiene with inconsistent patching, weak authentication, lack of code signing, no available software bill of material (SBOM), and no/limited Shadow IT and Shadow AI oversight. Some supply chain partners may also lack operational resilience and recovery plans, which can translate to a prolonged outage in the case of an incident.

Vendor consolidation across a relatively small number of cloud, payments, and fintech platforms means breaches can quickly cascade across the sector, as highlighted by the CrowdStrike incident. Similarly, malicious or compromised third-party libraries, SDKs, and CI/CD pipelines can propagate malware or backdoor into many customers quickly. AI is also increasing the scale, sophistication, and effectiveness of such attacks.

In the self-inflicted category, many financial institutions lack sufficient contractual controls with their third-party vendors, including no/limited right to audit, slow breach notification clauses, no mandated cybersecurity standards, and no/limited cyber insurance provisions.

A Stricter Regulatory Landscape for Financial Institutions and Their Vendors

The current global cybersecurity regulatory landscape for financial services is characterized by stricter oversight, mandatory resilience frameworks, and cross-border compliance requirements – especially targeting third-party risk, cloud security, and operational resilience. Financial institutions must now demonstrate robust cyber hygiene across their entire digital supply chain. However, not all jurisdictions are moving in the same direction or at the same pace.

Similar to GDPR and the AI Act, the EU is leading the regulatory charge with the Digital Operational Resilience Act (DORA) and the NIS2 Directive. Enforced from January 2025, DORA mandates that financial entities manage ICT third-party risks, conduct threat penetration testing, and ensure business continuity across digital supply chains. NIS2 expands cybersecurity obligations to critical infrastructure, including financial services, and tightens incident reporting timelines.

In the U.S., the Federal Reserve emphasizes third-party cyber risk management and operational resilience as core supervisory principles. As well, the Office of the Comptroller of the Currency (OCC) in its 2025 Cybersecurity and Financial System Resilience Report emphasized third-party risk management, requiring banks to assess and monitor supply chain partners’ cybersecurity practices and incident response capabilities.

In Asia, Japan’s Financial Services Agency (FSA) Cybersecurity Guidelines focus on supply chain risk assessments and require scenario-based testing of cyber resilience, while the Monetary Authority of Singapore (MAS) Guidelines require financial institutions to implement robust third-party risk management, including due diligence on cloud and IT vendors.

Improving Financial Supply Chain Cyber Resilience and Compliance

Mitigating cyber risk and improving operational resilience across the financial services supply chain is a top priority for financial institutions and regulators alike. A critical first step for financial institutions is to compile a complete inventory of third-party solutions that also maps critical vendors and dependencies. The use of a cryptographic security platform can be invaluable to help facilitate this effort and keep the inventory current over time.

Next, financial institutions should undertake sufficient cyber due diligence on any new vendors and apply cyber risk scoring across all third parties to evaluate security hygiene and resilience including patch cadence, the use of MFA and code signing, Shadow IT and Shadow AI governance and oversight, along with the availability of written procedures and SBOMs.

To help ensure operational resilience, financial institutions should implement continuous third-party risk assessments that simulate vendor outages and responses. Also, to further reduce risk and improve operational resilience proper network segmentation with least privilege access will help ensure vendor access is limited to only what is necessary.

If not done already, financial institutions should strengthen vendor contractual controls including the right to audit, mandated cybersecurity and data protection standards, minimum breach notification timelines, recovery SLAs, cyber insurance, and regulatory cooperation. Also, organizations should insist on vendor SBOMs as part of their contractual obligations.

An added best practice is to document all third-party cybersecurity procedures, risk assessments, and remediation plans. These will be invaluable for operational resilience and regulatory compliance.

Cryptographic Security Platform for Financial Supply Chain Resilience

Mitigating third-party cyber risk is critical to the integrity and resilience of the global financial system. CISOs need unified visibility across their organization’s software supply chain including vendor SBOMs to stay ahead of this monumental task. This is the value of taking a cryptographic security platform approach that provides complete at-a-glance supply chain visibility with a unified SBOM security, compliance, and risk dashboard. This lets CISOs quickly and easily identify potential supply chain vulnerabilities, prioritize patches and updates, assess cyber risk posture, proactively mitigate cyber threats, and maintain compliance. With a platform approach, software supply chain security becomes an integral component of a financial institution’s larger cryptographic data security program vs. an add-on.