Third party cyber risk management is the practice of identifying, assessing, and mitigating cyber threats that originate from external partners, vendors, or service providers. With more than half of data breaches involving third parties, it’s essential to have a robust strategy in place. This article will explain the types of third-party risks, their implications, and best practices for managing them effectively.
Key Takeaways
- Effective third-party risk management is critical in protecting against a variety of risks, including compliance, strategic, financial, operational, and cybersecurity risks, which are particularly relevant given the rising incidence of third-party data breaches.
- A robust third-party risk management program must include comprehensive risk assessments, continuous monitoring, and a thorough vendor onboarding process to identify and mitigate potential security vulnerabilities.
- Best practices for managing third-party risks include setting clear contractual expectations, conducting regular audits and assessments, and having tailored incident response plans to ensure rapid and coordinated actions in the event of a breach.
Understanding Third Party Cyber Risks
Third-party risks are the potential threats that arise from the organizations you rely on, such as vendors, suppliers, or service providers. These risks come in many forms, each with its own set of challenges and implications. Some examples of third-party risks include:
- Compliance risk: arises from violations of laws and regulations that organizations must follow
- Environmental, social, and governance (ESG) risks: occur when vendors fail to adhere to laws or policies related to environmental impact or employee treatment
- Reputational risk: can result from vendor negligence, such as the loss or disclosure of customer information. In some cases, these risks may extend to fourth parties, which are the vendors and suppliers of your third-party partners.
It is important for organizations to identify and manage these risks to protect their own reputation and ensure the continuity of their business operations.
Some common types of risk associated with vendors include:
- Strategic risk: occurs when vendor decisions misalign with an organization’s strategic objectives, impacting compliance and reputation.
- Financial risk: emerges from excessive costs or lost revenue due to vendor performance issues.
- Operational risk: arises when vendors fail to deliver services, disrupting an organization’s daily activities.
- Cybersecurity risk: involves monitoring vendors’ cybersecurity posture to identify compromised systems and assess their ability to contain attacks.
Given that over half of data breaches in the US involve third parties, comprehending these risks is of paramount importance. The complexity of global supply chains and the ease of business connectivity through technology make third-party data breaches increasingly common. Failure to assess these risks exposes organizations to supply chain attacks, data breaches, and reputational damage. Efficient mitigation of potential security incidents requires a comprehensive understanding of the full spectrum of third-party risks.
Importance of Third Party Risk Management
Far from being a mere box-ticking exercise, third-party risk management constitutes a critical element of an organization’s cybersecurity strategy. Managing third-party cyber risks helps control the vendor ecosystem, identify vulnerabilities, and remediate critical issues. This is especially important given that 87% of CISOs experienced significant cyber incidents originating from third parties in the past year. Proactive management of these risks empowers organizations to bolster their defenses against data breaches, operational disruptions, and financial losses.
Investing in third-party risk management provides numerous benefits, including:
- Maintaining operational continuity by ensuring that vendors can deliver services without interruption, with the help of vendor risk management teams
- Ensuring compliance with local legislation and regulations, as regulators worldwide are introducing new laws to make vendor risk management a regulatory requirement
- Preventing reputational damage from negative public opinion due to third-party actions, such as data breaches caused by poor security controls.
Organizations must consider information security during vendor sourcing and selection to mitigate risks associated with access to sensitive data and systems. A robust third-party risk management program enables organizations to:
- Strengthen their cybersecurity posture
- Simplify their information security
- Promptly resolve critical risks
- Leave an audit trail.
Key Components of a Third Party Risk Management Program
To evaluate potential vulnerabilities and security gaps presented by external partners, suppliers, or service providers, a robust Third-Party Risk Management Program is indispensable. Such a program should involve identifying third-party risks, assessing their impact, and implementing effective mitigation measures. Factors to consider include vendors’ information security maturity, their work with other enterprise clients, necessary security controls, and their track record of data breaches or compliance violations.
The program must include regular monitoring and audits to ensure ongoing security and compliance. Essential components of a third-party risk management program include risk assessments, continuous monitoring, and a thorough vendor onboarding process. Each of these components will be explored in detail in the following subsections, providing a comprehensive approach to managing third-party risks effectively.
Risk Assessments
As the cornerstone of a third-party risk management program, risk assessments entail a thorough evaluation of potential vulnerabilities and security gaps that external partners may pose, accomplished by due diligence and risk tiering. This process should include identifying risks, assessing their impact, and implementing measures to mitigate them. Performing due diligence ensures that third parties can keep information secure and comply with relevant laws and regulations.
Organizations should use a rubric to classify third parties based on the risks they present, helping to efficiently identify required assessments and controls. Security ratings, similar to credit ratings and FICO scores, provide a quantitative measure of cyber risk and assist with third-party risk management. A higher security rating indicates a better security posture, offering a data-driven, objective, and dynamic measurement of an organization’s security.
Thorough risk assessments allow organizations to:
- Acquire valuable insights into vendors’ security controls
- Ensure the effective management of potential risks
- Maintain the overall security of the third-party ecosystem
- Mitigate the likelihood of security breaches and other cyber incidents.
Continuous Monitoring
To detect emerging threats and maintain ongoing compliance with security standards, continuous monitoring is pivotal. Ongoing monitoring of third-party vendors is particularly crucial for critical or high-risk vendors. This process involves tracking third-party activities and regularly reassessing relationships and risk exposures.
Continuous monitoring provides real-time insights into vendors and allows organizations to observe movements against risk thresholds. Vendor management tools can be utilized to maintain continuous monitoring and compliance assessments, ensuring alignment with industry standards. These capabilities enable the early detection and mitigation of vendor-related risks.
Implementation of continuous monitoring processes allows organizations to:
- Real-time evaluate and detect security and compliance issues
- Proactively maintain the security of third-party relationships
- Mitigate potential supply chain risks
Vendor Onboarding Process
For effective management of third-party risks, a thorough vendor onboarding process is critical. The first step before onboarding a third party is conducting an analysis to identify risks and the level of due diligence required. This process should involve:
- Evaluating the vendor’s information security maturity
- Assessing their track record of data breaches
- Ensuring compliance with security controls and requirements
Onboarding should include conducting a risk assessment based on completed security questionnaires. This helps ensure that the new vendor meets all compliance requirements and poses minimal risks to the organization. Establishing a clear business case for outsourcing activities during the planning phase helps identify potential risks and controls.
Implementation of a robust vendor onboarding process enables organizations to:
- Engage only with third parties that meet their security and compliance standards
- Maintain the overall security of the third-party ecosystem
- Mitigate potential security breaches
This proactive approach helps in ensuring the security and compliance of the organization’s vendor relationships.
Best Practices for Managing Third Party Cyber Risks
To manage third-party cyber risks, a strategic approach and the implementation of best practices are required. Establishing a robust third-party risk management process is a foundational step in managing these risks effectively. Ongoing vendor reviews are essential over their lifecycle as new security risks are introduced over time. Despite the high concern among CISOs regarding third-party cybersecurity threats, only a small percentage have implemented a comprehensive third-party cyber risk management solution.
For effective management of third-party cyber risks, practices include setting contractual expectations, conducting regular audits and assessments, and incident planning. Each of these practices will be explored in detail in the following subsections, providing a comprehensive approach to managing third-party risks effectively.
Setting Contractual Expectations
To ensure transparency and agreement on data security practices, it’s crucial to establish clear contractual expectations with third-party vendors. Organizations should:
- Ensure that sensitive systems or data are not attached to low trust zones
- Ensure that vendors have access only to the network segments necessary for their job
- Establish clear company policies regarding data sharing with third parties
- Build vendor contract management processes with vendor risk management in mind
- Avoid the sharing of sensitive information
These steps help to ensure data security and minimize the risk associated with third-party vendors, including the selection of a reliable third party vendor.
CISOs should include specific requirements in third-party contracts, such as notification timelines and information to be supplied in case of a cyber incident. Contracts should also clearly define performance measures or benchmarks to manage risk effectively.
Additionally, clear terms and conditions for ending a vendor relationship, including data handling, are essential for effective incident response.
Regular Audits and Assessments
For high-risk vendors, the ongoing monitoring process should incorporate periodic reviews and refreshed risk assessments. Regularly updating risk assessments when changes occur ensures that third-party risks are always managed effectively. Vendor contracts should include provisions for audit and remediation rights to ensure compliance.
CISOs need to create assessments that flag potential security issues quickly, triggering deeper dives into third-party security practices. Asking third parties how often they test their business continuity plans can help gauge the maturity of their security programs. Objective, externally observable information helps verify vendors’ security and flag areas for follow-up.
Incident Response Planning
To manage cyber risk effectively, it’s crucial to develop tailored incident response plans for third-party breaches. These plans should include naming specific security leaders at third parties for direct communication in case of an event. Incident response plans should also detail how to handle data and intellectual property during a third-party breach.
Tailored incident response plans ensure rapid and coordinated actions during an incident, helping to mitigate the impact on the organization. This proactive approach helps in maintaining business continuity and managing cyber risks effectively.
Case Studies of Prominent Third Party Data Breaches
Insights into the potential risks and impacts on organizations can be gleaned from examining prominent third-party data breaches. The Target breach, for instance, was initiated through a spear-phishing attack on one of Target’s HVAC contractors, compromising the data of over 70 million consumers. The SolarWinds supply chain breach had a far-reaching impact, affecting over 18,000 users of their Orion network management product, including major US government agencies and firms.
In 2023, various data breaches occurred, such as:
- AT&T’s third-party vendor’s system breach exposing customer information for 9 million accounts
- LinkedIn’s breach affecting over 700 million users
- Dollar Tree’s breach impacting almost 2 million people due to an attack on service provider Zeroed-In Technologies
These case studies highlight the significant repercussions of third-party data breaches on organizations, impacting customer data, financial stability, and reputation.
Microsoft Midnight Blizzard Attack
The Midnight Blizzard attack, also known as NOBELIUM, serves as a stark reminder of the vulnerabilities within third-party cyber ecosystems. This sophisticated cyber-attack targeted Microsoft in January 2024, compromising email accounts and sensitive data of US government agencies and businesses. The attackers exploited weaknesses in Microsoft’s supply chain, demonstrating how a breach in one part of the network can ripple through to critical infrastructure.
The Midnight Blizzard attack underscores the importance of continuous monitoring and rigorous third-party risk assessments. By simulating real-world scenarios and enhancing incident response plans, organizations can better prepare for such sophisticated threats. This case study highlights the need for a proactive approach in managing third-party cyber risks to safeguard sensitive data and maintain business continuity.
United Health Group Hack
The ransomware attack on Change Healthcare, a subsidiary of UnitedHealth Group, had the following impacts:
- Disrupted hospitals and pharmacies nationwide, bringing critical services to a standstill
- Brought pharmacy operations to a stop
- Led to widespread outages and issues with processing insurance and patient billing
This incident illustrates the devastating impact that third-party breaches can have on essential healthcare services.
The United Health Group hack emphasizes the need for comprehensive third-party risk management strategies, including regular audits and continuous monitoring of high-risk vendors. By identifying potential vulnerabilities and implementing robust security controls, organizations can mitigate the risks associated with third-party relationships and ensure the resilience of critical services.
Infosys McCamish Data Breach
The Infosys McCamish data breach, which led to unauthorized access to Bank of America’s customer information, highlights the significant risks posed by third-party relationships. Cybercriminal gang Clop exploited a vulnerability disclosed by Progress Software, gaining access to sensitive information such as names, addresses, and business email addresses. This breach underscores the importance of robust security measures and continuous monitoring of third-party vendors.
The Infosys McCamish data breach serves as a cautionary tale for organizations in the financial services industry and beyond. It highlights the need for thorough vendor due diligence, regular risk assessments, and proactive incident response planning to mitigate the impact of third-party breaches and protect customer data.
Evaluating Third Party Security Measures
To ensure that vendors meet an organization’s minimum security standards, it’s crucial to evaluate third-party security measures. A third-party security risk assessment includes activities such as:
- Security questionnaires
- Real-time risk intelligence feeds
- Penetration tests
- Vulnerability scans
- Certification reviews
- Policy examinations
These assessments help identify deficiencies and ensure compliance with security standards and regulatory requirements.
Evaluating third parties often involves using methods such as:
- Security ratings
- Questionnaires
- Penetration testing
- Virtual and onsite evaluations
These solutions can help assess the security practices and risks associated with working with external partners. By employing a combination of these methods, organizations can gain a comprehensive understanding of their third-party vendors’ security posture and address potential risks effectively.
Penetration Testing
To uncover vulnerabilities in a third party’s infrastructure, penetration tests that simulate cyber-attacks are performed. This method helps organizations identify weaknesses that could be exploited by cybercriminals, allowing them to take proactive measures to strengthen their defenses. While traditional risk assessment methods like penetration testing and security questionnaires are often point-in-time and can be expensive, they are essential for identifying and mitigating potential security risks.
Regular penetration tests enable organizations to:
- Stay ahead of emerging threats
- Ensure that their third-party vendors maintain a strong security posture
- Manage cyber risks
- Protect sensitive data from potential breaches
This proactive approach helps in managing cyber risks and protecting sensitive data from potential breaches.
Security Questionnaires
To identify potential weaknesses in third-party vendors, business partners, and service providers, security questionnaires are employed. They aim to prevent data breaches and cyber attacks. These questionnaires can be informed by frameworks like SIG (Standardized Information Gathering) and CAIQ (Consensus Assessments Initiative Questionnaire). Organizations can create their own security questionnaires by editing existing ones or building one from scratch, ensuring they are tailored to specific needs.
The purpose of having the vendor complete a security questionnaire is to gain insights into the vendor’s security controls. While this process can be lengthy and does not scale well, it provides valuable information about a vendor’s security posture at a specific point in time. Using security ratings alongside traditional risk assessment techniques can provide ongoing, objective, and verifiable information about a vendor’s security controls.
Overcoming Challenges in Third Party Risk Management
Maintaining a robust security posture necessitates overcoming challenges in third-party risk management. Common challenges include:
- Lack of visibility and engagement with vendors
- Difficulty maintaining visibility over all vendors as the ecosystem grows, leading to potential cyber attacks and compliance issues
- Need for continuous monitoring processes to keep an updated view of a vendor’s risk exposure.
Another significant challenge is communicating the importance of cybersecurity to time-poor vendors who may have different perspectives and goals. Utilizing automated tools for dispatching and assessing risk-based questionnaires can streamline communication and engagement with vendors. By addressing these challenges, organizations can ensure that their third-party risk management processes are effective and comprehensive.
Lack of Visibility
A significant challenge is maintaining visibility over all vendors in an expanding third-party ecosystem. As the number of vendors increases, it becomes more difficult to track their activities and risk exposures effectively. Implementing continuous monitoring processes is essential to keep an updated view of a vendor’s risk exposure and ensure that no potential risks are overlooked.
Assessing all vendors against the same standardized checks is crucial to ensure consistency and that nothing falls through the cracks. By maintaining visibility over all vendors, organizations can better manage their third-party relationships and mitigate potential security risks.
Lack of Engagement
The challenge lies in engaging with vendors and communicating the importance of cybersecurity, especially when vendors have divergent perspectives and goals. Time-poor vendors may prioritize other aspects of their business, making it difficult to ensure they adhere to necessary security practices. Utilizing automated tools for dispatching and assessing risk-based questionnaires can streamline communication and engagement with vendors.
By automating these processes, organizations can:
- Ensure that vendors understand the importance of cybersecurity and comply with required security measures
- Maintain strong third-party relationships
- Mitigate potential security risks
This proactive approach helps in maintaining strong third-party relationships and mitigating potential security risks.
Features to Look for in a Third Party Risk Management Platform
In selecting a third-party risk management platform, features that enhance scalability, automation, comprehensive risk assessments, and dashboard functionalities are essential to look for. A scalable platform is crucial for managing numerous third parties efficiently, ensuring the program can grow as needed. Automated alerts for re-assessment and administration of risk assessments ensure that all vendor risk assessments are up-to-date and consistent.
Comprehensive vendor risk assessments should include environmental, social, and governance (ESG) criteria, diversity and inclusion (D&I) factors, and cyber risk assessments. Identifying beneficial owners of businesses is also crucial for due diligence. An effective TPRM platform should enable vendor list management and automated reporting for continuous monitoring activities.
Dashboard functionalities should provide an overall risk profile visualization and detailed risk reports. Streamlining processes by managing correspondences and remediation efforts within a single platform increases efficiency. By selecting a platform with these features, organizations can enhance their third-party risk management processes and ensure comprehensive risk mitigation.
Distinction.Global
Founded by Peter Hacker, Distinction.Global is a platform dedicated to researching cyber threat developments and assisting companies in identifying, quantifying, and addressing their cyber risk exposures at the Board, Risk Management, and Legal Level. The organization utilizes both manual and machine learning capabilities, including threat and clauses intelligence, to enhance the continuum of contract and exposure assessment in the Insurance, Reinsurance, and Corporate Sectors.
Understanding cyber incidents and their risk and aggregation impact is crucial for effective risk management. The team of experts at Distinction.Global aims to bridge a significant gap in risk language and understanding by combining (re)insurance executives with native cyber security and incident specialists. By leveraging their expertise, Distinction.Global helps organizations navigate the complexities of cyber risks and ensure robust risk management strategies.
Summary
In summary, mastering third-party cyber risk management is essential for protecting your organization from potential threats in 2024. By understanding the various types of third-party risks, implementing robust risk management programs, and following best practices, organizations can mitigate the impact of third-party breaches and safeguard their data, customers, and reputation. Real-world case studies highlight the significant repercussions of third-party data breaches and underscore the importance of proactive risk management.
As we move forward, it is crucial to continuously evaluate and improve third-party risk management processes. By leveraging advanced platforms and tools, organizations can enhance their risk assessments, monitoring, and incident response capabilities. Remember, the journey to mastering third-party cyber risk management is ongoing, and staying vigilant is key to maintaining a secure and resilient business environment.
Frequently Asked Questions
Why is third-party risk management important?
Third-party risk management is important because it helps control the vendor ecosystem, identify vulnerabilities, and protect organizations from data breaches and financial losses.
What are the key components of a third-party risk management program?
The key components of a third-party risk management program include risk assessments, continuous monitoring, and a thorough vendor onboarding process. These elements help evaluate vulnerabilities, track activities, and ensure security compliance.
How can organizations overcome challenges in third-party risk management?
To overcome challenges in third-party risk management, organizations can maintain visibility over all vendors through continuous monitoring and streamline communication and engagement with vendors using automated tools and risk-based questionnaires. This approach can enhance risk management and vendor relationships.
What features should be looked for in a third-party risk management platform?
Look for scalability, automated alerts, comprehensive risk assessments, and dashboard functionalities in a third-party risk management platform to enhance efficiency and ensure comprehensive risk mitigation.
How does Distinction.Global help organizations with cyber risk management?
Distinction.Global helps organizations with cyber risk management by leveraging manual and machine learning capabilities to identify, quantify, and address cyber risk exposures, while providing robust risk management strategies through their team of experts.
