How credit unions can fix the third-party risk blind spot

Growing dependency, shrinking control

Credit unions are becoming more reliant on a limited set of external technology providers - particularly for core systems and fintech integrations. While this can drive short-term efficiency, it introduces a growing concentration of risk.

According to the Credit Union Outlook Report 2025, 82.4% of credit unions across the UK and Ireland cite third-party failures as a top operational risk. Furthermore, 62.7% of credit unions said managing operational risk is their top challenge (closely followed by addressing internal skills gaps, at 54.9%).

Many credit unions currently rely on three or fewer core vendors for their most critical digital infrastructure. This dependence can reduce bargaining power and amplify exposure to operational failures, cyber threats, and misaligned compliance protocols. If one vendor falters, the impact cascades across member experience, regulatory standing, and institutional trust.

Confidence gap in vendor governance

Despite their reliance, few credit unions feel adequately prepared to manage third-party risk. Only 12% report being “very confident” in their ability to oversee third-party relationships from a governance and resilience standpoint. For smaller institutions, the challenge is compounded by limited staff, outdated tooling, and fragmented oversight responsibilities.

Many credit unions still equate third-party oversight with contract vetting. The sector’s overall risk maturity is uneven, and without a shift in approach, many credit unions will remain exposed to unseen vulnerabilities. 

“While some progress has been made through informal user groups and collective audits, the picture remains inconsistent. We urgently need stronger, sector-wide mechanisms for oversight, legal review, and shared due diligence, because as our dependence grows, so does our exposure,” said Martin Fisher, Head of Northern Ireland, Irish League of Credit Unions.

Rethinking risk for co-operatives: Why bank-grade compliance won’t cut it

Most credit unions are still applying compliance playbooks built for traditional banks -  institutions with deeper resources, different regulatory profiles, and more centralised structures. This approach is misaligned with the co-operative model, where governance is member-led, and risk oversight often spans multiple roles. Compliance is becoming increasingly complex, and this disconnect can have real consequences.

72.5% of Drova survey respondents agreed they want clearer, co-operative-specific regulatory guidance to navigate evolving frameworks, including around operational resilience.

“What credit unions need is proportionate, co-operative-specific resilience guidance,” said Dermot O’Neill, CEO of the Scottish League of Credit Unions. “We’re expected to comply with frameworks designed for billion-pound banks.”

In a sector that operates on lean margins and relies heavily on trust, the cost of non-fit frameworks is strategic, not just procedural. What’s needed is clearer, co-operative-specific regulatory guidance to help them keep pace with evolving expectations.

Rethinking third-party risk as a strategic enabler

As credit unions deepen their reliance on digital platforms, cloud infrastructure, and outsourced providers, third-party risk is no longer a technical footnote, but a board-level concern.

Resilience requires more than regulatory alignment; it means proactively managing interdependencies. The most forward-thinking institutions are shifting from basic vendor oversight to scenario planning, shared due diligence, and smarter governance frameworks.

Resilience today means more than backups. It means readiness for disruption, whether that comes in the form of a system failure, a cyber incident, or a single-point vendor collapse.

Beyond a risk response, resilience IS the growth strategy. Credit unions that elevate vendor governance from operational task to strategic capability will not only protect their members, they’ll future-proof their mission.

Created for credit unions

Drova GRC is an all-in-one platform for risk, resilience and compliance. Credit unions around the world trust Drova to simplify risk, meet compliance head-on, and protect member trust for the long run. Book a demo with our team today to learn more.

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