Trust in the age of AI for fintech auditors

There is an old saying: Trust, but verify.

For Third-Party Risk Management auditors in regulated financial institutions, that principle has never been more relevant.

Vendor questionnaires, SOC 2 reports, and annual reassessments are no longer enough. Regulators are moving beyond paper-based oversight and toward operational proof.

The new expectation is clear:

Show where customer data is actually flowing. Prove that you control it.

In an environment governed by the SEC, FINRA, GLBA, NYDFS, and expanding state privacy laws, that shift changes everything for TPRM.

And AI has accelerated the urgency.

The Regulatory Convergence Around Data Visibility

Registered investment advisers, broker-dealers, and advisory fintech platforms operate under overlapping regulatory frameworks. Each points toward the same requirement: demonstrable control over customer information.

SEC Regulation S-P and Cybersecurity Risk Management Rules

Firms must safeguard customer records, supervise service providers, and maintain documented cybersecurity programs. During examinations, regulators increasingly ask:

• Which third parties receive client data?
• What categories of data are shared?
• How is this monitored?
• How do you prevent unauthorized disclosure?

A static vendor inventory is no longer sufficient evidence.

GLBA Safeguards Rule

Recent updates to the Safeguards Rule emphasize risk assessments, continuous monitoring, and service provider oversight. Financial institutions must demonstrate that they understand where Non-Public Information is transmitted and how it is protected.

Belief is not evidence. Documentation must reflect operational reality.

NYDFS 23 NYCRR 500

New York’s cybersecurity regulation requires formal third-party security policies, data classification, audit trails, and risk-based assessments. Examiners expect artifacts that demonstrate ongoing oversight.

Narrative explanations without telemetry are increasingly difficult to defend.

State Privacy Laws such as CCPA and CPRA

Advisory firms operating across state lines must maintain defensible data maps and Records of Processing Activities. They must identify which vendors receive personal information and where that data travels geographically.

The burden of proof sits squarely with the institution.

Where Traditional TPRM Falls Short

Most TPRM programs were built on assumptions:

• Vendors enter through procurement.
• Data sharing is disclosed during onboarding.
• Risk is assessed annually.
• Architecture diagrams remain accurate.
• Approved SaaS equals known risk.

Those assumptions no longer hold.

Business units acquire tools outside formal channels. Developers integrate APIs directly into applications. SaaS providers embed AI capabilities that introduce subprocessors not clearly disclosed. AI agents move data dynamically across services.

The result is a growing gap between the vendor list and actual data flows.

For auditors, this creates a dangerous situation. You may be reviewing the wrong universe of risk.

AI Introduces Runtime Exposure

AI changes the nature of third-party risk in three fundamental ways.

First, invisible dependencies. An approved SaaS provider may rely on multiple model providers or cloud AI infrastructure behind the scenes.

Second, API-level integrations. Developers can connect directly to AI services without triggering traditional vendor onboarding processes.

Third, agentic automation. AI agents and orchestration tools can autonomously retrieve, process, and transmit client data across multiple endpoints.

Static questionnaires cannot capture runtime behavior.

As another wise saying goes, You cannot manage what you cannot see. In the context of AI and data governance, visibility must be continuous.

The Questions Regulators Are Increasingly Asking

Recent enforcement patterns and examination trends suggest regulators will focus on:

• Real-time inventory of third parties receiving customer data
• Identification of AI services processing sensitive information
• Geographic destination of outbound data
• Audit logs of data egress activity
• Evidence that controls prevent unauthorized transfers, not just detect them

These are operational questions. They require operational answers.

Data Flow Diagrams as Regulatory Evidence

Historically, data flow diagrams were architecture documents maintained by engineering teams. Today, they are compliance artifacts.

To withstand examination, a defensible TPRM program must show:

• Comprehensive third-party inventory, including AI services
• Classification of outbound data
• Geographic resolution of data flows
• Policy enforcement on data in motion
• Audit-ready exports aligned with regulatory requirements

Manual diagrams and spreadsheet inventories cannot keep pace with dynamic AI interactions.

TPRM must evolve from vendor-centric oversight to data-centric governance.

From Vendor Risk to Data Flow Control

Traditional TPRM evaluates vendors. Modern regulators evaluate data exposure.

The shift is subtle but significant. Instead of asking whether a vendor is secure in theory, regulators are asking whether your institution controls data in practice.

This is where runtime visibility becomes essential.

Riscosity enables financial institutions to create a live inventory of all third parties their software communicates with, including AI services. It classifies outbound data in real time, tracks geographic destinations, and applies enforceable policies to govern data in motion.

For TPRM auditors, this means:

• Vendor inventories aligned with actual network behavior
• Automatic discovery of AI usage
• Evidence-backed data flow diagrams
• On-demand exports for examination support
• Policy enforcement that blocks or redacts sensitive data before exposure occurs

Instead of relying solely on attestations, auditors gain technical evidence.

The Strategic Imperative for TPRM Leaders

Regulators are not asking whether AI is being used. They assume it is.

The real question is whether your organization can prove that it understands and controls the data implications.

In regulated financial services, documentation without visibility is fragile. Visibility without enforcement is incomplete. Enforcement without evidence is indefensible.

Trust remains important. But verification is now mandatory.

For TPRM auditors, the path forward is clear. Move from static vendor lists to continuous data flow governance. Align oversight with runtime reality. Build an evidence stack that can withstand regulatory scrutiny.

Because in today’s financial environment, the most dangerous risk is not the vendor you assessed last year.

It is the data flow you cannot see today.

Talk to us at Riscosity, we are happy to help! Drop us a line here - sales@riscosity.com