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Third Party Risk

Third-Party Risk Management: Determining the Right Degree for You

29 Aug 2023
What Degree of Third-Party Risk Management Do You Need? - Responsible Cyber

In today's interconnected digital ecosystem, businesses often rely on a vast network of third-party providers for various services, ranging from cloud computing to payment processing.

As organisations weave third parties into their operational fabric, the question arises: How much third-party risk management is essential?

Let's delve into this critical issue, shedding light on different degrees of third-party risk management and determining what might be most appropriate for your organisation.

 

Understanding Third-Party Risk

Third-party risk, in essence, encapsulates the potential hazards that an organisation is exposed to when they interweave external vendors, suppliers, or partners into their operations. It's more than just understanding the superficial elements of these risks—it’s about comprehending the vast implications that these external collaborations might pose, spanning from operational disruptions to reputational damage.

The National Institute of Standards and Technology (NIST) provides a comprehensive framework for understanding and managing risks associated with third parties. According to the NIST Special Publication 800-37, third-party risks arise when an external organisation is granted authorised access to an organisation's resources, thereby potentially affecting the organisation's security posture. For instance, if a cloud service provider who has been entrusted with an organisation's data suffers a breach, the cascading effects of such an incident may lead to the exposure of sensitive information, thereby posing a significant threat to the primary organisation.


Common Third-Party Risks: Illustrations from Reputable Sources

  1. Data Breaches: One of the most publicised risks. For instance, the notorious Target breach in 2013 was initiated through an HVAC vendor which provided an avenue for the attackers to access Target's network.

  2. Software Vulnerabilities: This refers to flaws in software applications provided by third parties. A good example is the Apache Struts flaw that led to the Equifax breach, affecting millions of consumers.

  3. Operational Disruptions: Engaging with third-party vendors can also introduce interruptions in regular business operations. For instance, if a third-party payment processor experiences an outage, it can hinder the primary organisation's ability to process transactions.


Delving Deeper with the Cloud Security Alliance (CSA)

The Cloud Security Alliance (CSA) has identified third-party risks as a critical domain in cloud computing. They categorise third-party risks under the umbrella of "Data Loss and Leakage." The CSA emphasises the importance of understanding the shared responsibility model, where both the cloud provider and the consumer play a role in ensuring security. While cloud providers are typically responsible for the infrastructure's security, consumers must ensure the data they place in the cloud and how it’s accessed and utilised.

While the brief definition of third-party risk might make it seem straightforward, its intricacies are vast and multifaceted. Drawing from authorities like NIST and lessons from real-world incidents emphasises the profound significance and the breadth of implications associated with third-party risk management. As organisations continue to expand their collaborations with external entities, the understanding and management of these risks become ever more pivotal.


Factors Influencing the Degree of Third-Party Risk Management

The degree of third-party risk management an organisation requires is influenced by several key factors. Foremost among these is the nature and sensitivity of the data shared with or accessed by third parties. The more critical or confidential the data, the higher the scrutiny required. Additionally, the third-party's integration level into the organisation's systems—be it superficial or deeply ingrained—affects risk exposure. Regulatory and compliance mandates also play a role; industries like healthcare or finance often have stringent requirements around third-party interactions.

Lastly, the past security performance and reputation of the third-party can guide the degree of oversight and due diligence necessary. In summary, the below should be considered:

  • Nature of Your Business: A healthcare provider, due to its handling of sensitive patient data, requires more rigorous risk management compared to a local coffee shop setting up an online store.

  • Volume of Third Parties: If your operations involve a multitude of third-party interactions, the risk landscape broadens, necessitating comprehensive oversight.

  • Regulatory Environment: Industries like finance, health, and utilities often fall under stringent regulatory guidelines, compelling more intensive third-party risk management efforts.

  • Data Sensitivity: The nature of the data shared with or managed by third parties will dictate the degree of oversight. Critical or personal data mandates stricter control.


Degrees of Third-Party Risk Management

Third-Party Risk Management encompass a spectrum of measures and controls an organisation can implement based on their exposure and reliance on external entities. At the foundational level, there's basic due diligence which involves vetting third parties before engagement, ensuring they meet minimum security and compliance standards. A more intermediate approach might include regular audits and assessments of third-party security protocols and systems. At the most advanced degree, organisations might employ continuous monitoring of third-party operations, mandate periodic security training, and integrate joint incident response plans. The depth and breadth of these measures are typically proportional to the potential impact of a third-party failure on the organisation's operational integrity, reputation, and bottom line.

  • Basic: At this level, companies might conduct occasional audits or reviews of their third-party vendors, primarily focusing on the most prominent partners without a comprehensive strategy.

  • Intermediate: Here, organisations maintain a regular audit schedule, vet new third-party integrations, and may employ a dedicated team to manage and review third-party relationships.

  • Advanced: Advanced risk management involves constant monitoring, regular threat assessments, real-time response mechanisms, and comprehensive governance structures, including dedicated technology and teams for third-party risk assessment.


The NIST Framework and Third-Party Risk Management

The NIST (National Institute of Standards and Technology) Framework and Third-Party Risk Management align to offer a comprehensive approach to assessing and managing risks associated with external vendors, partners, and suppliers. At its core, the NIST Framework provides a structured set of standards, guidelines, and best practices to improve cybersecurity. When applied to third-party risk management, it facilitates a tiered approach. Initially, organisations can utilise the framework to identify and document potential third-party risks. Subsequently, they can assess how these external entities protect critical assets and data. Advanced application of the NIST framework in this context could involve creating a coordinated response strategy for potential third-party breaches, regular testing and validation of third-party security measures, and leveraging its guidelines for consistent communication and reporting.

By integrating NIST's principles, businesses can achieve a robust and proactive stance towards managing the risks posed by their external partnerships:

  • Identify: Recognise the third-party relationships in your ecosystem.

  • Protect: Implement safeguards to ensure that third-party integrations don't compromise your security posture.

  • Detect: Employ tools and strategies to detect anomalies or threats stemming from third-party integrations.

  • Respond: Design mechanisms to respond promptly to any third-party-related incidents.

  • Recover: Ensure that you can recover from a third-party incident without significant disruption.


Tools and Strategies for Effective Third-Party Risk Management

Tools and Strategies for Effective Third-Party Risk Management are essential for organisations to systematically identify, assess, and mitigate risks associated with external vendors and partners. To navigate the multifaceted domain of third-party risks, businesses deploy a mix of technological solutions and strategic approaches.

On the tools front, advanced software platforms offer features like continuous monitoring, automated risk assessments, and real-time alerts about potential threats or breaches in a third-party environment. Such tools often integrate with an organisation's existing IT infrastructure, offering insights into the security posture of external entities.

On the strategic front, it's crucial to establish a dedicated third-party risk management program, which includes regular audits, due diligence checks before onboarding vendors, and establishing clear communication protocols. Organisations also embrace frameworks like NIST and ISO to standardise their approaches. Additionally, training and awareness programs ensure that all internal stakeholders understand the implications of third-party risks and the steps required to manage them effectively.

By harmoniously combining these tools and strategies, organisations can create a holistic, proactive, and efficient third-party risk management ecosystem:

  • Third-Party Risk Management Software: These tools can automate the risk assessment process, providing real-time insights into potential threats and vulnerabilities.

  • Regular Audits and Assessments: Employ a consistent schedule of audits, ensuring third parties remain compliant with your security and operational standards.

  • Incident Response Planning: Craft a detailed response plan tailored to potential third-party incidents, ensuring swift action when needed.

  • Cyber Insurance: Consider policies that cover third-party incidents, offering an additional layer of protection.


The degree of third-party risk management your organisation requires depends heavily on the nature of your operations, the volume and type of third-party interactions, regulatory demands, and the sensitivity of the data in play. For some, basic periodic audits might suffice. In contrast, others might need to invest in advanced tools, technologies, and teams dedicated to managing third-party risk. In any case, given the growing reliance on third parties in modern business operations and the evolving threat landscape, a proactive stance on third-party risk management isn't just recommended—it's a necessity.

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