In the current landscape of global business, the intricate web of third-party relationships underscores the varied types of third-party risks. Companies encounter numerous external vulnerabilities, spanning from operational mishaps to strategic inconsistencies. Safeguarding an organisation’s operational integrity, reputation, and strategic path requires active identification, comprehensive assessment, and meticulous management of these risks, especially in an era of growing interconnectivity.
How Can I Minimise Third-Party Risks?
The immediate action you will need to take to mitigate third-party risks depends on the status of your organization’s third-party risk management (TPRM) program. However, the initial stages of the vendor risk management process should certainly cover the following aspects.
1. Keep an Up-to-Date Vendor inventory
In today’s interconnected business world, maintaining an up-to-date inventory of vendors is crucial for managing third-party risk effectively. Vendors, encompassing a broad spectrum of external parties such as manufacturers, service providers, contractors and external staff play integral roles in an organisation’s operations. It is essential to accurately identify these entities, ensuring the inventory is continually updated. This process includes tracking both the onboarding of new vendors and the offboarding of those no longer in service. Additionally, attention should extend to fourth parties – the vendors of your vendors – to gain a comprehensive understanding of the entire supply chain.
Understanding your vendors’ continuity plans is equally critical, particularly in the event of cyber breaches. Despite robust security measures, such incidents can occur. It is vital to know how your vendors will respond: their notification procedures, remedial actions and plans for informing affected individuals. In the financial sector, where customer trust is paramount, the responsibility to safeguard personal details and assets is profound. A data breach, even if caused by a vendor, can significantly tarnish your institution’s reputation. Therefore, it is imperative that vendor continuity plans align with your expectations, minimising both financial and reputational damage as much as possible.
Lastly, awareness of risks posed by subcontractors is key. Monitoring your direct third-party relationships is not enough; threats can also emerge from contractors’ subcontractors. Gathering information about vendors at all tiers is essential. This can include requiring your primary third-party vendors to certify their due diligence processes regarding their subcontractors. This due diligence should cover aspects like cyber security efforts, regulatory compliance, employee screening processes and other risk mitigation measures. By doing so, you can create a more secure and resilient third-party network, protecting your organisation against a cascade of potential risks emanating from multiple layers of external engagements.
2. Establish a Vendor Assessment Process
Establishing a robust vendor assessment process is a critical step for organisations in managing third-party risk. After creating a comprehensive inventory of vendors, the next move is to develop a workflow for assessing and approving potential third-party vendors and suppliers. This process ensures that they can meet all contracted obligations and agreements. Incorporating a vendor questionnaire template is crucial at this stage, as it streamlines the onboarding of new vendors and the assessment of current ones. This assessment process can unearth key insights such as regulatory compliance gaps, the efficacy of a vendor’s Vendor Risk Management (VRM) program, and their overall security posture. These insights, particularly when bolstered by security ratings, provide a clear understanding of each vendor’s cybersecurity levels against industry benchmarks.
Conducting thorough due diligence on vendors before initiating any partnership is paramount. It involves verifying their legitimacy and scrutinising their security measures, especially if they are to handle sensitive customer data. Regular auditing of their security protocols is advisable to identify new risks and vulnerabilities. Furthermore, it’s essential to limit their access to your organisation’s financial records and customer accounts as much as possible. Understanding the extent of access granted to each vendor and their employee vetting process helps in maintaining control over sensitive information.
Finally, a continuous awareness of the scope of access granted to each vendor is crucial. This involves not just limiting their access to sensitive data and bank accounts but also monitoring the number of individuals accessing this information. Ensuring that vendors have robust processes for vetting their employees further strengthens this control. This comprehensive approach to vendor assessment – from initial vetting to ongoing monitoring – is vital in safeguarding an organisation against the multifaceted risks posed by third-party engagements.
3. Implement A Third-Party Risk Management Program
Implementing an effective Third-Party Risk Management (TPRM) program is essential for organisations, especially financial institutions, as they navigate the complexities of managing numerous vendor relationships. Third-party risk, once a peripheral concern, has now become a significant issue due to the increasing number of vendor partnerships. These relationships can expose financial institutions to various risks including financial, reputational, operational, and even legal or regulatory risks. An effective TPRM program must prioritise third-party risk management, recognising the varying levels of risk each vendor brings. This involves categorising vendors into different risk tiers, each requiring specific due diligence, risk assessment processes, and communication of the importance of TPRM within the organisation. While it is crucial to focus on high-risk vendors, regular assessments against standardised checks for all vendors are necessary to ensure comprehensive risk coverage.
Working collaboratively with vendors to mitigate risks is another key aspect of TPRM. Financial institutions should assess and rank vendors based on their cybersecurity risk levels and proactively work with those posing the highest threats to minimise risks. Clear communication of expectations is vital when establishing contracts with third-party vendors. Financial institutions should explicitly outline their regulatory and cybersecurity requirements and the consequences of non-compliance, including the possibility of contract termination for vendors who fail to meet these standards.
Lastly, the implementation of real-time fraud prevention and detection solutions is paramount. Given that third-party vendors often have access to sensitive accounts, the potential for fraud is a critical concern. Institutions should employ systems that continuously monitor and analyse account activity, enabling them to swiftly identify and respond to fraudulent behaviour. This proactive approach not only reduces the risk of fraud but also enhances the institution’s ability to detect and prevent potentially fraudulent activities before they occur. Such comprehensive measures are integral to a robust program, ensuring the security and integrity of financial institutions in a landscape of complex vendor relationships.
An ongoing and dedicated process
Managing and mitigating third-party risk in today’s interconnected business environment is an ongoing, dynamic process, not a one-time task. The vigilance in this domain goes beyond the initial vendor onboarding; it necessitates continuous monitoring and regular reassessments. Annual completion of vendor questionnaires is essential, but it is just the beginning. Regular checks are required to ensure that a vendor’s security posture remains robust and aligned with the organisation’s standards.
Effective TPRM is both time-intensive and resource-demanding. Given the broad spectrum of responsibilities shouldered by information security teams, dedicating sufficient attention to third-party risk can be challenging. One practical solution is outsourcing to a managed TPRM provider, which can offer expertise and resources specifically tailored for this purpose.
In conclusion, safeguarding an organisation’s operational integrity, reputation and strategic direction in the modern era of business requires a proactive and ongoing approach to third-party risk management. This involves active identification, thorough assessment and careful management of risks, underpinned by a commitment to regular monitoring and adjustment as needed. The complexities of managing these risks underscore the importance of either allocating dedicated internal resources or engaging with specialised TPRM providers to navigate the challenges effectively.
