Independent Collaboration Part 2: A Framework for Outsourcing IT in Financial Institutions

This article is the second of a 2-part series on building an effective outsourcing strategy for the various components of IT for financial institutions. The idea is to share what I’ve seen work over my years of working with multiple institutions. This is not meant to push anyone toward outsourcing - that is a decision that must be made based on the specific circumstances of the organization - and the answer is different for everyone. But, as we are seeing more and more FIs look in this direction, it felt like a good time to explore this topic.

Part 1 talks about why financial institutions need to consider a team of independent entities working together - if you haven’t read that, I suggest you do so first. (You can find Part 1 here.)

The key takeaway from Part 1 is that if you’re going to start outsourcing, you need to find the right balance of partnerships (i.e. vendors) that keep all the parts independent but aren’t so independent that they can’t work together.

The objective of this article is to explain what can be outsourced, help you to identify areas of potential conflict (independence), and give you some ideas on how to manage a group of vendors to work together (Collaboration).

What parts of IT can a financial institution outsource?

While banks and credit unions can’t outsource the decision-making and ownership of risk for their IT operations, we live in an age where just about everything else is on the table.

This is not a fully exhaustive list, as I even removed some for simplicity. It also is not this black and white, as some institutions get very granular in their outsourcing, down to the management of very specific services. Keep in mind, the purpose for defining this list is so we can use it for our independence matrix in the next section, so don’t get too hung up on the details right now.

Core - this covers all core banking services, including deposits, loans, item processing, e-banking, ATM, etc.

IT - this can sometimes be called “Managed IT” or a “Managed Services Provider” (MSP). For our general purposes, we’re defining it as including: helpdesk, network management, server management, patching, procurement and installation, etc.

Audit - this is the testing of general controls for effectiveness, usually performed annually. While it can be coupled with penetration testing, I’ve separated the two for this article.

Penetration Testing - this is the independent testing of the defenses of the network and assets. It should include both external and internal testing. It is more than a vulnerability scan - it is a simulation of a cyber attack, more than just a list of theoretical weaknesses. It is typically done once annually.

Vulnerability Scanning - this is an operational scan of the network for missing patches and other misconfigurations. This should be done at least quarterly, but more frequent is better.

Monitoring - this may also be called a SIEM, or “Managed Security Services Provider” (MSSP). This should be done 24x7x365 by people who know what they are doing. I’ve yet to run across a community bank that should not be outsourcing this. It typically includes network traffic, server logs, endpoint logs, firewall, intrusion prevention, etc.

Datacenter - this is the hosting of servers, routing equipment, and other information assets.

CISO - this is the leadership, strategy, governance, and oversight of the information security and cybersecurity programs. It generally includes policies, risk management, board reporting, incident response, vendor management, etc.

CIO - this role sets the strategy for the organization’s technology and digital objectives. It will work with the other areas listed here to ensure that business goals are being met.

What are the Areas of Potential Conflict?

Looking at the list above, you can begin to see where would make sense to consolidate certain roles. This reduces the number of vendors you have to manage and would help to simplify communications. And, unfortunately, most vendors will gladly provide more services to your institution - either because they just want to be helpful OR they want to grow their business.

BUT - that can get you in trouble. You can’t have someone providing oversight on duties their company performs. You can’t have someone auditing programs that their company helped to design or maintain. You don’t want someone providing “advice” that is really just a sales presentation.

Not a good way to run a business - and regulators will begin to question as to whether these types of management practices lead to a safe & sound environment.

It’s OK - these weren’t as much of a concern years ago. As FIs outsource more and more, it gets harder to tell what makes sense and what can compromise independence.

So I’ve created the matrix below to help sort out what outsourced services can be done by the same company, and which ones would present a conflict. Simply find the service that your using a vendor for on the left-hand side, then find another service in question along the top. If the intersection is green, you’re good to add that service to that existing vendor relationship. If the intersection is red, you need to find someone else to perform one of the services. It is bi-directional, so either way, the answer is the same.

One thing to note: I’m hearing more and more of the idea that service companies are creating “separate divisions” to maintain their independence in some of the areas of red below. While this separation of divisions may “technically” make this “OK”, I would urge you to be very cautious. Organizations looking for “technicalities” typically just want to “check the box” anyway and this article isn’t going to be for them. The matrix below is intended to be used for the financial institutions that want to build solid IT and IS programs, free from the issues that conflicts of interest can create. That being said, it assesses these services at the business level, not at the division, team, or individual level.

Some examples:

Core In-house, IT and Datacenter outsourced to MSP (including monthly vulnerability scans), Monitoring outsourced to SIEM provider, In-house CIO, Virtual CISO, Annual audit and pen test done by audit firm. Total Outsourced Vendors: 4

Core, Managed IT, Datacenter, and Monitoring outsourced to core provider, In-house CIO, In-house CISO (performs quarterly vuln scans), ITGC audit performed annually by audit firm, annual penetration testing performed by specialty pen testing company. Total Outsourced Vendors: 4

Core Outsourced, IT and Datacenter outsourced to MSP, SIEM Monitoring outsourced to MSSP, Virtual CIO, Virtual CISO, Annual audit and pen test done by audit firm. Total Outsourced Vendors: 6

How do I get this many Vendors working together?

This is where the collaboration comes in. The last thing you want to have is a bunch of vendors that don’t work together - it makes your job harder AND it’s not secure.

When done correctly, you can have the best of both worlds: the specialized skills and expertise to move you in the right direction, but that feels like they are part of a working team.

Here are some tips for building a collaborative culture for your outsourced IT environment:

1. Assign internal liaisons for each vendor. Depending on how many you have, this may be multiple people. Audit should always go through the audit committee. Core is usually someone in back-office operations. IT might be the CTO or COO. The CISO can be the COO or someone in risk. Try to keep it simple without overloading any one person. Keep in mind: these liaisons will need to be involved in ongoing meetings, so make sure they have the time. Two key traits for an IT Liaison: they have some authority to make the call on things that will be asked of them - or can quickly escalate for an answer where they don’t’ AND that they care enough to carve out the time and energy for this.
   
   
2. Set up recurring meetings for key members of the outsourced IT group. At a minimum, this should be monthly, we’ve seen it as frequent as daily during heavy sprints. These meetings should include the following outsourced areas: IT, CIO, CISO, and their internal liaisons. During times of projects, the core may get involved as well, but not typically. You want the members of this team to work together, but also to be comfortable to call each other out in a constructive way. Sometimes vendors tend to want to “play nice” with one another - that’s not a bad thing for them to be professional and courteous. That doesn’t make you better - you want all parties to be comfortable offering suggestions and ideas for the improvement of your organization.
   
   
3. Encourage service providers to work together. Make it clear that it’s ok for your virtual CISO to have a meeting with your managed IT provider on the results of the most recent vulnerability scan without you or their liaisons. It’s going to feel weird at first, but if you insist on being involved in everything - things are going to become very painful very quickly. Let your vendors know that you trust them to take care of the day-to-day and to roll-up any concerns to monthly meetings.
   
   
4. Be OK if it doesn’t work perfectly at first. Just like anything, new ideas require adjustments and tweaking. You have to keep trying new ways of managing outsourced relationships to get it right. If it doesn’t work as you thought right away, don’t give up, try another way. ALSO - don’t be afraid to ask your vendors for help. They’ve likely worked in a similar setup and would be happy to tell you what has worked in other situations.

Conclusion

Outsourcing IT can be a great strategic move for many community financial institutions, but every situation is different. Managing these relationships to achieve “Independent Collaboration” amongst your vendors is worth the effort.

Hopefully, you’ve found this guidance helpful in developing you own strategy or enhancing your existing one.

If you’d like to learn more about this topic, let me know. If you have ideas for a resource that we can create, I’d be happy to consider it. Just contact us at support@bedelsecurity.com.