Navigating the Third Party Regulatory Landscape In 2026 for Financial Service Companies

Guest author: Nita Kohli, CEO & Founder of Kohli Advisors

The big picture

If 2024-2025 were about getting the frameworks in place, 2026 is shaping up as the year supervisors test whether those frameworks actually work under stress. Supervisory focus is converging on one deceptively simple question: do you understand and can you manage your end-to-end supply chain for critical services, down to the nth party?

As we look into 2026, regulators globally aren’t just adding rules, they are tightening the connective tissue between prudential safety, operational resilience, and digital dependency.   Although the current US administration favor de-regulation, or rather less regulation, many of the regulations issued outside the US, are impacting the US through the services being received or provided.

Further afar, jurisdictions and regulators are increasingly treating third-party arrangements as part of the bank's operational risk and resilience perimeter, not a procurement exercise, and not something that can be delegated away once a contract is signed.

This shift matters because many of the most material risks firms face are non-financial in origin: operational disruption, cyber events, data integrity failures, service unavailability, and regulatory non-compliance triggered by a provider's outage or subcontractor weakness.

Let’s explore this in more detail.

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Third-party risk is now explicitly supply chain resilience

Recent international guidance from the Basel Committee is sharpening the industry's direction of travel: third-party risk management (TPRM) is no longer about ‘vendor management’ or ‘outsourcing compliance’, it’s fundamentally about resilience and operational disruption, especially in a world of rapid digitalisation and expanding dependency on external providers.

The practical pivot is away from narrow outsourcing compliance and toward end-to-end dependency management, including supply chain (nth-party) exposure, governance, and ongoing oversight.

• Dependency transparency becomes a baseline expectation: not just who the vendor is, but which subcontractors, sub-processors, and key technology components sit beneath the service.
• Operational outcomes matter more than paperwork: firms will be expected to evidence that third-party arrangements support recovery objectives and continuity, not merely meet an SLA on a good day.
• Accountability remains with the firm: boards and senior management cannot outsource responsibility; increased reliance on a provider increases the need for governance, not decreases it.

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What supervisors will likely look for in 2026 whether you can show the following:

(1) critical service dependency mapping, 

(2) visibility into material nth parties, and 

(3) credible service provider outage scenario testing that demonstrates real decision paths and recovery sequencing.

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ICT third-party oversight is moving from firm-by-firm to ecosystem-level supervision

Regulatory attention is steadily shifting from traditional vendor management toward systemic operational resilience,  including direct oversight of critical ICT third-party providers in some jurisdictions, area that DORA (Digital Operational Resilience Act) focuses on.

2026 is where cross-border supervisory cooperation and enforcement are likely to become more visible, with focus on incident response, operational testing, and provider accountability.

• Why this matters: It is about service availability, cyber resilience, incident response cooperation, data controls, and operational testing, not just about revenue or capital.
• Firms should assume that major incidents will be reviewed through a dependency lens: what was outsourced, what was subcontracted, what changed, what was tested, and what failed.

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The contractual resilience gap is becoming a supervisory gap

A recurring issue supervisors see is a disconnect between policy maturity and operational reality: firms may have solid frameworks and risk ratings, but contracts often don’t themselves enable fast recovery, transparency, or effective incident collaboration.

In 2026, contracts are increasingly treated as a control. In a crisis, your contract frequently determines whether you can act.

• Notification and cooperation: defined timelines, war-room participation, evidence sharing, and communications cadence.
• Subcontractor transparency: disclosure of material nth parties 
• Testing participation: the right and obligation, where appropriate, to run joint exercises and obtain artifacts and results.
• Recoverability alignment: RTO/RPO and restoration sequencing that match your critical service needs, not a provider's generic standard.
• Exit and portability: realistic transition assistance and data export terms that make exit plans more than a just a document.

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A practical approach is to build a tiered-clause pack: must-haves for critical services, and proportionate requirements for lower-impact providers. The goal is to have operational clarity when things go wrong, as disruption is the new norm.

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Continuous assurance replaces annual questionnaires

Annual reviews and questionnaires provide a point-in-time view, and often become outdated almost immediately.  2026 expectations are shifting toward continuous assurance: a risk-based operating model that uses signals and trigger events to keep oversight current.

Managed effectively, this reduces both burden and surprise. This will allow you to focus attention where it changes fastest and matters most.

• Tier by critical service impact, not just vendor spend.
• Define KRIs for example: uptime trends, incident frequency, change velocity, security control drift, staffing volatility, repeated SLA misses
• Establish trigger events for example: M&A, major outage, new sub-processors, architecture shifts, regulatory findings, repeated service degradation
• Tie outputs to action: enhanced monitoring, contract remediation, scenario tests, or decisioning on exit options.

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AI is accelerating supply chain risk - and regulators are watching

AI is not only a model risk topic; it is a dependency topic. Many AI capabilities are delivered through third parties (platforms, model providers, data vendors, and cloud stacks), which introduces new operational and governance exposure.

In 2026, expect increased scrutiny on whether firms understand those dependencies, can evidence controls, and have fallbacks when AI-enabled services degrade.

• Clear accountability for AI-enabled processes (not 'the vendor's model').
• Transparency on sub-processors and data lineage.
• Controls for model drift and failure modes.
• Resilience planning for AI provider outages or degraded performance.

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What boards and executives should focus on

A practical approach to preparedness in 2026 requires not boiling the ocean; it requires precision around the services that matter most.

• Start with critical business services, then map dependencies end-to-end (applications to infrastructure to providers to subcontractors).
• Run provider-down scenarios that include decision rights, communications, and restoration sequencing - not just tabletop narratives.
• Upgrade contracts to enable real incident response and recoverability (including testing and subcontractor transparency).
• Operationalize continuous assurance with KRIs and trigger events for critical providers.
• Treat AI as part of the supply chain: governance, monitoring, and dependency transparency as standard practice.

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In summary, looking ahead into 2026, regulators are converging on non-financial risk as a primary driver of financial stability. If you can demonstrate supply chain visibility, operational testing, and governance that holds up in real incidents, you'll be ahead of the curve and have a competitive advantage.

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