Can escrow reduce third-party resiliency risks?

Wayne Scott, global regulatory compliance lead at Escode, spoke in a recent industry broadcast about how escrow arrangements can reduce third-party exposure and help firms address supplier failure, service deterioration and concentration risk.

He defined supply failure as the abrupt loss of a vendor service, service deterioration as a decline in performance or functionality over time, and concentration risk as heavy reliance on a small group of providers. Scott said these three issues shape resilience planning for financial firms and other organisations that depend on external software and services.

Scott described escrow as a mechanism that creates an independent record and a clear route for customers to access critical assets or information when a supplier fails or service drops below contractual expectations. He said escrow arrangements can provide verifiable evidence that a customer has a practical option to continue operations if contractual or operational breakdowns occur.

Regulatory expectations differ across jurisdictions, including the UK, India, Saudi Arabia, the US and Switzerland, and those differences affect what evidence and controls regulators will accept when assessing resilience and third-party risk management. A single global approach to escrow may not meet every regulator’s requirements.

Scott urged firms to treat concentration risk as a separate resilience issue rather than folding it into routine vendor management. He recommended that organisations review whether their third-party arrangements would produce the evidence needed by boards and regulators in a supplier collapse or severe service decline, and whether escrow mechanisms are appropriate in the jurisdictions where they operate.

Regulators and boards have increased scrutiny of third-party relationships and continuity planning, prompting firms to add tools that provide auditable proof of recoverability alongside contractual terms, monitoring and contingency plans.

‘Many are too big to save,’ he warned, summarising the risk of relying on large suppliers without concrete fallback arrangements.