Why Cyber Security in Third Party Risk Management is Critical

As businesses expand their use of third-party services, the potential for risk increases exponentially. These risks can range from data breaches resulting in loss of sensitive information to supply chain disruptions that can halt operations. Without a comprehensive TPRM program, organizations leave themselves vulnerable to:

• Data breaches and cyberattacks
• Compliance violations
• Reputational damage
• Financial losses

Steps to Conducting a Third Party Cyber Security Risk Assessment

Step 1: Identify Third-Party Relationships

The first step in conducting a third-party risk assessment is to identify all the third-party vendors and service providers your organization engages with. This includes any entity that has access to your systems, data, or business processes.

Practical Example: An SME might list its IT support provider, payroll processing company, cloud storage provider, marketing agencies, and any other external partners.

Step 2: Gather Relevant Information

Collect detailed information about each third party to understand the nature of the relationship and the extent of their access to your data and systems. Key information to gather includes:

• Services provided: What services or products does the third party deliver?
• Data access: What type of data does the third party have access to?
• Regulatory compliance: Is the third party compliant with relevant regulations (e.g., GDPR, HIPAA)?
• Security measures: What security controls does the third party have in place?

Practical Example: For a cloud storage provider, you would gather information on their data encryption practices, access control mechanisms, compliance with GDPR, and past security incidents.

Step 3: Assess the Risks

Evaluate the risks associated with each third party based on the information gathered. Consider various risk factors, including:

• Data sensitivity: How sensitive is the data the third party handles?
• Access level: What level of access does the third party have to your systems and data?
• Regulatory impact: What are the potential regulatory implications if the third party fails to comply with relevant laws?
• Operational impact: How critical is the third party’s service to your business operations?

Practical Example: A payroll processing company handles sensitive employee data, including social security numbers and bank details. The risk assessment would consider the potential impact of a data breach, the company’s security controls, and its compliance with employment data regulations.

Step 4: Evaluate and Prioritize Risks

Once you have identified the risks, evaluate their likelihood and potential impact. This helps in prioritizing which risks need immediate attention and which can be managed with standard controls. Create a risk matrix to categorize risks based on their severity and likelihood.

Practical Example: An IT support provider with access to your network might be rated as high risk if it has weak security practices and handles sensitive data. Conversely, a marketing agency with limited access to non-sensitive data might be rated as low risk.

Step 5: Develop Mitigation Strategies

For each identified risk, develop strategies to mitigate it. These strategies may include:

• Implementing security controls: Strengthen access controls, data encryption, and network security.
• Updating contracts: Include clauses that mandate compliance with specific security and data protection standards.
• Regular monitoring: Set up regular audits and performance reviews to ensure ongoing compliance.

Practical Example: For the IT support provider, you might implement two-factor authentication for accessing your systems, require regular security training, and include an audit clause in the contract.

Step 6: Monitor and Review Regularly

Third-party risk management is an ongoing process. Regularly monitor the performance and compliance of your third-party vendors. Update risk assessments periodically to reflect any changes in the vendor’s operations, the nature of your relationship, or the regulatory environment.

Practical Example: Set up quarterly reviews of your cloud storage provider’s security practices and compliance status. Conduct annual audits to ensure continued adherence to GDPR and other relevant regulations.

Best Practices for Cyber Security in Third Party Risk Management

Implementing best practices can significantly enhance your third-party risk management efforts. Here are some essential practices:

• Centralize TPRM Processes: Manage all third-party risks from a central point within the organization to maintain oversight and consistency.
• Leverage Technology: Utilize TPRM software to automate assessments, monitoring, and reporting, enhancing efficiency and accuracy.
• Educate and Train Your Team: Regularly train employees involved in managing third-party relationships on the latest risks, regulatory changes, and best practices.
• Establish Strong Partnerships: Maintain open lines of communication with third parties to ensure any issues are promptly addressed and to foster a collaborative approach to risk management.
• Regularly Update Risk Management Practices: As your business grows and the external environment changes, regularly review and update your risk management strategies.

Conclusion

Conducting a thorough third-party risk assessment is crucial to safeguard their operations, data, and compliance status. By following this step-by-step guide, organisations can identify potential risks, evaluate their impact, and implement effective mitigation strategies. Regular monitoring and updates ensure that your third-party risk management processes remain robust and effective, protecting your business from potential threats and enhancing overall security and operational resilience.