We operate in an environment where businesses rely heavily on technology and data sharing. Organizations must safeguard their internal systems and manage the risks associated with their third-party relationships. Third party risk management (TPRM) is a vital component in any organization’s security strategy.
While third party relationships may enable many capabilities in the digital age, they also introduce inherent risks due to increased data-sharing touchpoints. Consulting firms, vendors, cloud providers, subcontractors, software developers, and other service providers must be considered in third-party risk due to their proximity to sensitive data.
By understanding third party risk, knowing how to identify it, and implementing a risk management framework, organizations can strengthen data integrity and eliminate points of vulnerability. This article will explore:
- The breakdown of third party risk management
- Understanding third party risk
- Third party risk management best practices
- How to conduct a third party risk assessment
- Third party risk management solutions
What is third party risk management?
Third party risk management identifies, manages, and mitigates risks associated with service providers or other external entities with access to a company's information assets. It involves monitoring external party activity and instituting controls to retain organization security, while not introducing unnecessary friction in data sharing systems.
Among data security professionals, third party risk management may also be equated to vendor risk management and supply chain risk management. TPRM is the consolidated discipline of understanding third parties and all the risks associated.
These steps are necessary because an external breach threatens your data integrity. Data breaches and cyber security incidents have impacted nearly all businesses and types of third parties, regardless of industry or location.
Understanding third party risk
Third party relationships can take a variety of forms. While specific risks vary depending on the industry or data-sharing relationship, a compromised service provider can leak data, destroy your system, and damage your reputation.
The financial and reputational implications of third party risk management failures can be significant.
Without proper third party risk management measures, your organization increases its chances of being impacted by data breaches, which could result in a damaged reputation, loss of customer trust, and costly fines or legal fees. Internal and external outages may expose lapses and vulnerabilities in your organization’s supply chain or operations. Additionally, regulatory compliance challenges may arise due to failed oversight of outsourcing risks, particularly if the breach involves protected private information.
To effectively manage third party risk, companies must develop a thorough understanding of potential vulnerabilities and threats made possible by third parties. This involves building and implementing a proactiveTPRM strategy to reduce the likelihood of security incidents.
Third party risk examples
These companies are case studies of when vendor risk management is neglected or ignored.
General Electric and Canon
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 addresses. Over 200,000 employees’ records were exposed. GE and Canon ultimately agreed to a $350,000 settlement for victims.
Humana, Anthem, and PracticeMax
A similar breach affected healthcare organizations Humana and Anthem in 2021 when a shared vendor, PracticeMax, admitted that hackers infiltrated its systems. Over 4,000 patient files may have been exposed, including first and last names, contact information, ID numbers, and other clinical data.
Target
Target suffered a devastating breach due to a successful attack on one of its HVAC suppliers. The organization granted the supplier network access without performing due diligence. If security checks had been conducted, they would have noticed that the company didn't follow industry-standard security practices. In response, Target revamped its security approach and implemented new measures, including some risk-management best practices.
What are third party risk management best practices?
No matter where you stand in developing your TPRM process, starting with best practices ensures your organization invests time and resources in the highest ROI tactics. You can mitigate third party risks by following clear and consistent protocols.
1. Pre-relationship: vendor discovery process
The first step of third party risk management begins before you even enter a relationship. You need a thorough understanding of the vendor’s security posture before considering close interactions. The vendor risk management process is straightforward if the potential partner or vendor has a Trust Center, in which case you can evaluate relevant documents and access security certifications without email back-and-forths. Without a Trust Center you may have to rely on a security questionnaire to conduct your third party risk assessment.
Vendor risk management may also include the categorization of vendors based on profiles and criticalities. Your company may need to prioritize vendor discovery based on the involvement and intensity of the assessment needed. Determining evaluation intensity during the discovery process includes generating parameters on which type of data will or will not be shared based on due diligence intensiveness:
- High risk, high criticality (most intensive)
- Medium risk, medium criticality
- Low risk, low criticality (least intensive)
2. Post-certification: controls and security
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.
3. Contingency: follow-up plans and education
Finally, it’s vital to develop incident response, 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. A core theme of third party risk management is setting clear expectations — your employees and your vendors must always be aligned with TPRM standards.
How to conduct a third party risk assessment
To effectively manage third party risks and ensure the security of your organization's data, you need a robust and continually evolving risk management framework. Here are some critical steps to consider:
Conduct comprehensive vendor assessments
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.
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 via risk monitoring.
Utilize a vendor’s Trust Center
Many vendors rely on Trust Centers to simplify and streamline the assessment and due diligence process. Look for platforms designed for vendors and buyers to exchange necessary security documentation and ensure a thorough evaluation of third party risks.
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 strong information security.
Monitor and audit
Your assessment will be meaningless if you don't establish rigid procedures that verify continued third party engagement with your security standards. Auditing and monitoring of third party activities should be ongoing and regularly scheduled to ensure that vendors comply with your standards.
What are some third party risk management solutions?
Implementing the right tools and technologies enhances the effectiveness of TPRM efforts. Here are key third party risk management solutions to consider:
Automated risk assessment tools
These tools streamline vendor evaluation by utilizing predefined frameworks and algorithms to assess security controls and compliance with industry standards.
Vendor risk management (VRM) platforms
VRMs offer centralized solutions for managing third party risks with risk scoring and compliance tracking features.
Data loss prevention (DLP) solutions
DLPs help prevent unauthorized data leaks or compromises by monitoring and controlling data movements within and outside the organization.
Threat intelligence and monitoring tools
These solutions 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.
Trust Centers
Trust Centers are a customer-facing home for a company’s security posture, balancing transparency with the control of sensitive information. They aggregate all security posture information into one place, enabling self-serve security reviews while maintaining customizable permission controls.
Conclusion
Third party risk management is an essential part of protecting your company’s sensitive data. It's important to 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.
You're only as secure as your weakest link – 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.
SafeBase is the scalable Trust Center that automates the security review process between buyers and sellers. With a SafeBase Trust Center, companies can seamlessly share sensitive security documentation with buyers and customers, including streamlining the NDA signing process by integrating with your CRM and your data warehouse.
If you’re ready to take back the time your team spends on security questionnaires, create a better buying experience, and position security as the revenue-driver it is, get in touch with us.
