What you’ll learn
- The risks associated with working with third-party vendors
- How to manage those risks effectively
- The importance of a robust risk management strategy to safeguard sensitive data
In an environment where businesses rely heavily on technology and data sharing, information security requires a two-pronged approach. Organizations must safeguard their internal systems and manage the risks associated with their third-party relationships.
Third-party risk management identifies, manages, and mitigates risks associated with service providers or other external entities that have access to a company's information assets. These steps are necessary because an external breach threatens your data integrity. As our founder and CEO often says, “The chain is only as strong as its weakest link.”
Understanding Third-Party Risks
Third-party relationships can take a variety of forms. A 2023 analysis by the Cyentia Institute institute found that the average organization had at least ten third-party relationships. You might form a data-sharing relationship with consulting firms, vendors, cloud providers, subcontractors, software developers, and other service providers.
A compromised service provider can leak data, destroy your system, and damage your reputation. The breach may even involve financial consequences.
In 2020, General Electric's third-party human resources document provider, Canon Business Process Service, experienced a significant breach. Hackers accessed Canon emails with sensitive GE employee data, including bank account information, social security numbers, and address. Over 200,000 employees’ records were exposed.
GE and Canon ultimately agreed to a $350,000 settlement for victims.
A similar breach affected healthcare organizations Humana and Anthem in 2021 when a shared vendor, PracticeMax, admitted that hackers infiltrated its systems. Thousands of patient files may have been exposed.
The Consequences of Inadequate Third-Party Risk Management
The financial and reputational implications of third-party risk management failures can be significant.
Without proper third-party risk management measures, organizations increase their chances of data breaches, which could result in a damaged reputation, lost customers, and costly fines or legal fees. Additionally, regulatory compliance challenges may arise due to failed oversight of outsourcing risks, particularly if the breach involves protected health information.
Building an Effective Third-Party Risk Management Strategy
To effectively manage third-party risks and ensure the security of your organization's data, you need a robust and continually evolving risk management strategy. Here are some critical steps to consider:
Conduct comprehensive vendor assessments
Thoroughly assess your potential third-party vendors' security posture and reliability before entering into a relationship. The assessment should include evaluating their information security practices, data protection measures, and compliance with relevant industry regulations.
Many organizations rely on technology such as SafeBase's Trust Centers to simplify and streamline this assessment process. SafeBase's Trust Centers provide a platform for both vendors and buyers to exchange necessary documentation and ensure a thorough evaluation of third-party risks.
Implement due diligence procedures
In addition to vendor assessments, establish due diligence procedures to ensure that every third party you engage with adheres to stringent security standards. For example, ensure your IT team understands the third party's encryption methods and access controls. By assessing the maturity of their security posture, you can identify gaps and proactively address them.
Establish clear contractual agreements
Create a contract outlining the security measures your third-party vendors must implement. Lay out clear expectations for data protection, privacy, incident response, and other operational procedures.
It's also important to specify who is responsible for managing risk and how often you'll review security protocols. A third-party vendor has no obligation to give timely notice of a breach unless it's in your contract.
Clearly defining these expectations helps you hold third parties accountable for maintaining high information security.
Monitor and audit
Your assessment will be meaningless if you don't establish rigid procedures that verify continued third-party engagement with stringent security standards. Auditing and monitoring of third-party activities should be ongoing and regularly scheduled to ensure that vendors comply with your standards.
Mitigating Third-Party Risks: Best Practices
You can mitigate third-party risks by following strict protocols. The first step begins before you even enter a relationship. You need a thorough understanding of their security posture before considering close interactions.
The discovery process is straightforward if the potential partner or vendor has a Trust Center. You can evaluate relevant documents and access security certifications without email back-and-forths.
Once your organization has certified a third-party vendor, it's time to implement access controls and encryption measures. Doing so will help secure communications and prevent data leakage.
It's also vital to develop incident response and business continuity plans and continuous training and awareness programs for employees. Training keeps your team updated on the latest security measures and minimizes the chances they'll fall prey to malicious actors.
Tools and Technologies for Third-Party Risk Management
Implementing the right tools and technologies enhances the effectiveness of third-party risk management efforts. Here are vital tools to consider:
- Automated risk assessment tools streamline vendor evaluation by utilizing predefined frameworks and algorithms to assess security controls and compliance with industry standards.
- Vendor risk management (VRM) platforms offer centralized solutions for managing third-party risks with risk scoring and compliance tracking features.
- Data loss prevention (DLP) solutions help prevent unauthorized data leaks or compromises by monitoring and controlling data movements within and outside the organization.
- Threat intelligence and monitoring tools provide real-time insights into emerging threats and vulnerabilities. Gathering information from multiple sources and analyzing it across networks enables you to identify security risks quickly.
Case Studies: Successful Third-Party Risk Management Examples
Real-world examples of organizations effectively managing third-party risks provide valuable insights into best practices and lessons learned.
In 2021, President Biden gathered leaders from the nation's top tech companies and strategized ways to bolster third-party security. As a result, the administration announced plans for the National Institute of Standards and Technology (NIS) to work with the industry "to develop a new framework to improve the security and integrity of the technology supply chain."
Apple committed to a new program to push "multi-factor authentication, security training, vulnerability remediation, event logging, and incident response” adoption to tens of thousands of suppliers and vendors.
Target suffered a devastating breach due to a successful attack on one of its HVAC suppliers. It granted the supplier network access without performing due diligence. If security checks had been conducted, Target would have noticed that the company didn't follow industry-standard security practices.
After the breach, Target revamped its security approach and implemented entirely new measures. They "limited or disabled network access for vendors; expanded use of two-factor authentication and password vaults; and disabled, reset, or reduced privileges on over 445,000 Target personnel and contractor accounts," among other changes.
The new protocols protected customer data and allowed Target to rehab its image.
Conclusion
Third-party risk management is an essential part of protecting sensitive data. It's important to always exercise caution when engaging with external parties and take the necessary steps to protect your business from threats.
By conducting vendor risk assessments, creating clear contractual agreements, and implementing appropriate tools and technologies, you can ensure that your third-party vendors comply with your security standards and protect your organization from data breaches and other threats.
Remember, you're only as secure as your weakest link – and your third-party vendors are some of the weakest links in your security chain. Taking proactive and comprehensive steps is necessary for protecting customer data and ensuring the success of your business.
Once you’ve created a comprehensive third-party risk management plan, showcase your policies and build lasting customer relationships with the help of a SafeBase Trust Center. Contact us to schedule a free demo to explore our platform today.
And for further reading on the topic of TPRM, check out our recap of “Your Third Party Risk Management Program is Bad and You Should Feel Bad” from this year’s RSA Conference.
