Governance vs Assurance in Third-Party Risk Management

What Is the Difference Between Governance and Assurance in Third-Party Risk Management? (Quick Answer)

Governance and assurance are complementary parts of third-party risk management. Governance focuses on establishing the policies, frameworks, responsibilities, and oversight processes used to manage third-party risks. Assurance focuses on verifying that those controls and processes are working effectively through audits, monitoring, risk assessments, and compliance reviews.

In simple terms, governance sets the rules and expectations, while assurance confirms they are being followed. Together, they help organizations manage third-party risks, maintain compliance, and strengthen supplier oversight.

In the context of third-party risk management, governance and assurance play distinct but complementary roles. Here’s a detailed description of the differences between the two:

Governance

Definition: Governance refers to the frameworks, policies, procedures, and processes that an organisation establishes to manage and oversee third-party risks.

Key Components:

• Policy Setting: Establishing clear policies for third-party engagements, including selection criteria, performance expectations, and compliance requirements.

• Roles and Responsibilities: Defining who within the organization is responsible for various aspects of third-party risk management (e.g., procurement, legal, compliance, IT).

• Framework Development: Creating a comprehensive risk management framework that integrates third-party risk into the overall risk management strategy.

• Decision-Making: Setting up committees or boards to make informed decisions regarding third-party relationships and associated risks.

• Compliance Oversight: Ensuring that third-party engagements comply with relevant laws, regulations, and industry standards.

• Strategic Alignment: Aligning third-party risk management strategies with the organization’s overall goals and risk appetite.

• Feedback Loops: Creating mechanisms to provide feedback to third parties on their performance and areas for improvement.

• Incident Response: Establishing procedures for responding to and investigating incidents involving third parties, and ensuring corrective actions are implemented.

Purpose: The primary aim of governance is to provide a structured and strategic approach to managing third-party risks, ensuring they are identified, assessed, and managed in alignment with the organization’s objectives and regulatory requirements.

Assurance

Definition: Assurance involves the activities and mechanisms that provide confidence and verification that third-party risk management practices are effective and that third parties are adhering to the agreed-upon standards and requirements.

Key Components:

• Audits and Reviews: Conducting regular audits and reviews of third-party activities and controls to verify compliance with contractual obligations and internal policies.

• Monitoring and Reporting: Continuously monitoring third-party performance and risk indicators, and reporting findings to relevant stakeholders.

• Certifications and Attestations: Obtaining certifications or attestations from third parties to demonstrate compliance with industry standards (e.g., ISO, SOC reports).

• Risk Assessments: Periodically reassessing third-party risks to ensure they are being managed appropriately over time.

Purpose: The main goal of assurance is to validate and verify that third-party risk management controls are operating effectively, and to provide confidence to stakeholders that third-party risks are being managed appropriately.

Summary

Governance is about setting up the strategic framework, policies, and oversight mechanisms to manage third-party risks in a structured manner. It focuses on establishing a clear structure for decision-making and accountability.

Assurance is about validating first (design of framework and controls is appropriate) and then verifying (governance controls are operating as intended) that the governance frameworks and risk management controls are effective. It involves monitoring, auditing, and providing evidence that third-party risks are being managed as intended.

In essence, governance sets the direction and expectations for managing third-party risks, while assurance provides the verification and confidence that these expectations are being met.