A Quick Guide To Third-Party Data Risk

FACT: Over 4.7 billion third-party credentials were leaked last year via infostealer malware.

This number includes usernames and passwords for popular business tools, such as Microsoft 365, Gmail, Salesforce, and Slack.

According to the Poneman Institute, 59% of companies experienced a data breach caused by a third-party.

The implications for these numbers are quite alarming.

Clearly, it’s no longer enough to simply secure your own network.

In this post, we’ll cover everything you need to know about third-party risk and the 10 best practices for implementing a Third-Party Risk Management framework.

What is third-party risk, and why does it matter?

Third-party risk refers to the potential vulnerabilities that arise when an organization relies on external vendors to provide services. This risk is an issue because third-parties can introduce security weaknesses, data breaches, and compliance issues that can impact your organization’s operations, reputation, and bottom line.

Third-party risk matters for several reasons. First, third-party vendors often have access to sensitive data, and a breach at their end can compromise your confidential information. Second,Organizations are responsible for ensuring that their third-party vendors comply with relevant regulations and standards (e.g., GDPR, HIPAA). Failure to do so can result in legal penalties and fines.

In addition, dependence on third-party services means that any disruption in their operations can directly impact your organization’s ability to function smoothly. Finally, any security incident affecting your vendors can have both financial and reputational repercussions on your organization.

What are the risks of third-party data?

Similar to other business risks, third-party vendor risks can be divided into the following three categories:

Operational: A third-party can negatively affect you in a number of ways, such as introducing vulnerabilities into your network, leaking your data in their breach, and causing downtime that prevents your business from operating.
Financial/Reputational: If a third-party vendor experiences a data breach that exposes your data or your client’s data, you could face significant financial and reputational losses from legal fees, regulatory fines, loss of business, and expenses related to remediating the breach.
Legal/Compliance: If a third-party vendor mishandles personal data, your organization could be held responsible for violating data protection laws like GDPR or HIPAA. This can lead to significant fines, legal action, and mandatory reporting requirements.

What is Third-Party Risk Management (TPRM)?

Third-Party Risk Management (TPRM) is the process of identifying, assessing, and mitigating risks associated with outsourcing to third-party vendors or service providers. This includes managing the potential risks that can arise from third-party relationships in areas like cybersecurity, data privacy, compliance, operational performance, and reputation.

The goal of TPRM is to ensure that third-party relationships don’t expose the organization to undue risk and that these relationships are managed effectively throughout their lifecycle. This involves conducting due diligence before entering into agreements with third-parties, continuously monitoring their performance and compliance with contractual obligations, and implementing controls to address any risks found.

How do you assess third-party vendor risks?

Assessing third-party vendor risks requires a systematic approach to identify, evaluate, and mitigate potential risks. Here’s a general approach to get you started:

Risk Identification: Start by identifying the types of risks associated with the third-party vendor. This includes cybersecurity risks, compliance risks, operational risks, financial risks, and reputational risks.
Due Diligence: Conduct thorough due diligence on the vendor before entering into a contract. This involves reviewing the vendor’s security policies, compliance certifications, financial stability, business continuity plans, and reputation in the market.
Risk Assessment: Evaluate the potential impact and likelihood of each identified risk. This can be done using a risk assessment matrix that categorizes risks based on their severity and probability.
Control Assessment: Assess the effectiveness of the vendor’s internal controls in mitigating identified risks. This includes evaluating their security measures, data protection policies, incident response plans, and compliance with relevant regulations.
Contractual Agreements: Ensure that the contract with the vendor includes clauses that address risk management, such as requirements for data security, compliance with regulations, audit rights, and breach notification procedures.
Continuous Monitoring: Implement a process for ongoing monitoring of the vendor’s performance and compliance with contractual obligations. This can involve regular audits, security assessments, and performance reviews.
Contingency Planning: Develop contingency plans in case the vendor fails to meet their obligations or a significant risk materializes. This includes having backup vendors, data backup procedures, and business continuity plans.

Third-Party Risk Management Best Practices

Here are some of the key elements and best practices to help ensure an effective Third-Party Risk Management (TPRM) framework:

Risk-Based Approach: Adopt a risk-based approach to TPRM, prioritizing vendors and services based on the level of risk they pose to the organization. This helps allocate resources efficiently to manage higher-risk vendors more closely.
Comprehensive Due Diligence: Conduct thorough due diligence on potential and existing third-party vendors to assess their security, compliance, financial stability, and operational capabilities. This should include evaluating their policies, procedures, and controls related to data protection, cybersecurity, and regulatory compliance requirements.
Clear Contractual Agreements: Ensure that contracts with third-party vendors clearly define roles, responsibilities, and expectations regarding risk management, data security, compliance, and performance metrics. Include clauses that allow for regular audits, access to documentation, and breach notification requirements.
Continuous Monitoring: Implement ongoing monitoring of third-party vendors to track their performance, compliance, and risk posture. This can involve regular audits, data leak monitoring, security assessments, and monitoring of key performance indicators (KPIs).
Incident Response and Escalation Procedures: Establish clear procedures for incident response and escalation in case of a security breach or non-compliance by a third-party vendor. This should include communication protocols, steps for containment and remediation, and reporting requirements.
Vendor Risk Assessment Framework: Develop a structured framework for assessing vendor risks, including criteria for categorizing risk levels, assessment methodologies, and tools for evaluating vendor risk profiles.
Training and Awareness: Provide training and awareness programs for employees involved in managing third-party relationships to ensure they understand the strategic risks, policies, and procedures related to TPRM.
Regulatory Compliance: Depending on your organization’s industry and jurisdiction, ensure that TPRM practices are aligned with relevant regulatory requirements and industry standards, such as GDPR, HIPAA, or SOC 2.
Collaboration and Communication: Maintain an open dialogue with your vendors to discuss risk management issues, share best practices, and improve security and compliance.
Continuous Improvement: Regularly review and update your TPRM program to adapt to changing risks, regulatory requirements, and industry best practices. This includes incorporating lessons learned from incidents and audits to improve risk management strategies.

The future of third-party risk management

The future of TPRM is expected to evolve in response to the increasing complexity of global supply chains, the rapid pace of technological advancements, and changes to the threat landscape. TPRM processes will likely become more automated, with AI and machine learning tools being used to streamline risk assessments, monitor third-party activities, and identify potential risks more efficiently.

Vendor risk management will also become more integrated with overall ERM (Enterprise Risk Management) frameworks. This means that third-party risks will be considered in the context of broader organizational risks, leading to a more holistic approach to risk management.

Finally, with the rising threat of cyberattacks, third-party risk management will focus more on ensuring that vendors and partners have the proper cybersecurity measures in place. With the amount of sensitive data now controlled by third-party vendors, it’s no longer enough to protect your own organization’s network. A data breach affecting one of your vendors can have catastrophic consequences for your company.

How Breachsense can help you manage third-party risk

Breachsense is a data breach monitoring solution that can alert you in real-time when your third-party vendor’s credentials or data appears on the dark web. This enables your security team to mitigate the risk and reset the stolen credentials before hackers can exploit them.

Breachsense provides flexible integration with virtually any application, SIEM, or browser, making it easy for businesses to implement the service into their existing security toolset.