The vendor risk assessment identifies and evaluates risks or hazards associated with the vendor’s operations and significantly impacts your organization. When an organization performs vendor risk assessment, it determines the effects of uncertain events that are most likely occur. Vendor due diligence and monitoring make it easy to mitigate the associated risks, enabling an organization to understand the risks of using the vendor’s product or services.

Conducting a vendor risk assessment or implementing vendor risk management software is essential, mainly when a vendor handles a critical business function and customer database. It is a process and an evaluation that businesses can use to determine if vendors meet their standards and obligations agreed in the contract. The ultimate goal is to secure the best vendors, supplier portfolio, and low-risk profile.

Seven Regulatory Risks Associated with Vendor Risks Assessment

  1. Cybersecurity Risk –

    This risk includes data breaches and cyber threats rapidly increasing today. All organizations, big or small, are facing this risk. It has become even more now as businesses have moved to remote work and rely on unsecured access to servers and conferences. The management has to focus on overseeing the relationship with their vendors. They have to oversee the cyber security risk assessment and vendor security assessment through delivering goods or services to planning for the business continuity.

  2. Information Security Risk- 

    This kind of risk occurs if a vendor discloses an organization’s information to other institutions. It is the risk to organizational operations, functions, and individuals due to the unauthorized access, disruption, or destruction of information or its system. It might be because of ransom or malware attacks. Vendors who are part of an organization must maintain secrecy and not disclose any information. An organization should conduct a vendor risk assessment to know the code of conduct of all vendors. It can prevent the risk of information security and enable safety in an organization.

  3. Regulatory Risk –

    It is the potential to change the laws, regulations, or interpretations that cause loss to an organization. Companies must abide by the regulations and laws set by the governing bodies. These regulations can introduce administrative hurdles and sometimes restrict a company from handling its operations. It might include a change in trade and tariff, financial regulation, tax policy, etc. It determines the vendor’s risk rating, which might be high, moderate, or low. 

  4. Business Impact Risk –

    The business impact risk is a regulatory risk that affects the entire business. determines whether a vendor is critical or non-critical to business operations. The primary risk in the business impact is related to the service disruption. These risks include theft, fraud, loss of intellectual property, extortion, and cybersecurity risks. All these risks affect or impact the entire business. The economic and financial events that include inflation rates, inadequate cash flow, etc., are certain risks that impact the business and lead to loss.

  5. Legal Risk –

    An organization is a legal entity that follows laws and regulations authorized. Legal risk is financial and reputational loss resulting from a lack of awareness, misunderstanding, and ambiguity in laws and regulations applied in the business. The vendors of an organization should follow and act according to the law. The legal risk is the exploitation of assets, misappropriation of assets, inventory theft, and cheque forgery. A vendor must not indulge in all these activities as it is against the norms of an organization. Therefore, by conducting a vendor risk assessment, an organization can prevent such risks from happening. 

  1. Compliance Risk –

    It arises from violations of rules and regulations that are against an organization. It also arises from noncompliance with an organization’s internal policies, procedures, and business standards. Compliance risks exist when products or activities of a third party are against the laws, rules, policies, regulations, or standards. If the third party isn’t maintaining the privacy of the customer’s database and is not implementing appropriate information security and disclosure, it leads to compliance risks. Therefore, organizations should set sound policies and procedures, have adequate oversight of activities, and monitor and perform audits.

  2. Contract Risk-

    This risk occurs when a condition isn’t met, or a deadline is missed. The business operations rely on a vendor meeting the terms and conditions of a legally drafted contract, and a vendor may sneak the hidden clauses and language into their contracts. The lack of visibility of vendor contracts can lead to issues like revenue loss or added costs. also includes the failure of the contract by vendors to meet their business needs. It also causes damage to the business, from a loss of competitive edge to personal reputation. Many contract risks or legal risks are interlinked. The effect of contract risks can create a significant impact on an organization. 


Every organization needs to perform vendor assessments for all its vendors to ensure credibility and security and for the smooth running of the business. This assessment should have the ability to prevent, respond, and recover. Supply chains are complex, and a business must understand its vendors, risks, and products. Established clarity in the operations and planning accordingly plays a vital role. The business should be alert to the above risks that cause negative impacts on an organization. Through an accurate assessment, an organization can understand the risk associated with the third or fourth-party vendor’s product or service. Organizations that rely mainly on vendors and do not have visibility in their vendor networks are exposing themselves to huge risks. Therefore, it becomes crucial to conduct the vendor risk assessment. You can contact ComplyScore, one of the leading agencies for all vendor risks analysis and mitigation. They help companies to prevent inherent risks, assisting in facing adverse situations and incidents. To know more, visit


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