In a cloud-first era, businesses and users have infinite business relationships with third parties for various operations, from running computer applications to obtaining computer resources to leveraging software services for marketing and financial purposes. However, as the cybersecurity arena evolves, with internal and external threats to their applications and environments, businesses and users must consider the risks posed to their data and systems by third-party vendors and services.  

That is where TPRM (third-party risk management) comes in handy. It helps organizations and users identify the types of threats that might arise from third-party services and vendors and how to protect their systems. This article will discuss what is TPRM and its importance in this cloud-first era. 

What Is TPRM?

TPRM identifies, analyzes, and manages threats posed by outsourcing third-party service providers or vendors.

There are infinite digital threats within the third-party risk category. These may include environmental, financial, security, and reputational risks. These risks arise because third-party service providers and vendors have access to sensitive data, intellectual property, protected health information (PHI), and personally identifiable information (PII).

TPRM aims to help organizations understand the third parties they use, how they use them, and the protective measures their third-party vendors and service providers have in place. Although the requirements and scope of a third-party risk management program vary widely from one industry to another and depend on the company and regulatory guidance, many third-party risk management best practices are universal and suitable for any organization or business. 

Since third-party relationships are crucial in business operations, TPRM is an integral component of all cybersecurity systems and programs. 

Why Do I Need to Think About TPRM?

You need to think about TPRM because third-party services and vendors directly or indirectly affect your company’s cybersecurity. Third-party service providers and vendors complicate your data security for various reasons:

  • Every organization relies on third-party vendors because outsourcing experts in any field is often better.
  • Third-party vendors and service providers aren’t under your control, and you don't have complete transparency in their security programs. Some third-party service providers have good risk management practices and robust security controls, while others have vulnerable security systems.
  • Every third-party vendor is a potential threat vector for a cyber attack or data breach. If a third-party vendor is vulnerable to cyber-attacks and data breaches, it threatens your information security. The more third-party service providers you use, the more potential threats you face, and your attack surface might also be large.
  • The inception of data breach notifications and general data protection laws, such as CCPA, GDPR, PIPEDA, LGPD, and the SHIELD Act, has significantly increased the regulatory and reputation impact of inadequate TPRM programs. For instance, if a third-party vendor has access to your customer information, a security breach at that third-party vendor could cause you to face regulatory penalties and fines--even though you weren’t directly responsible for the security breach. 

What Type of Data Do Vendors Have Access To?

Third-party vendors often have access to sensitive data, such as personal identifiable information (PII), employee information, HR information, financial records, marketing campaigns which include current and potential customer information, and even your organization’s proprietary coding language. 

What Is the Purpose of TPRM?

TPRM helps organizations monitor and analyze third-party vendors' risks to determine whether they exceed the threshold set by the company. This allows businesses to make risk-informed decisions and mitigate the risks posed by third-party service providers at an acceptable level. 

What Is the Typical Process of TPRM?

The typical process of TPRM encompasses identifying, evaluating, and managing the various risks that may arise over the entire lifecycle of your relationship with third-party service providers. Third-party risk management often starts during procurement and must continue until you complete the offboarding process.

Typically, potential risks are many and can be economical, managerial, reputational, and strategic. Specific risks include illegal use of data by third-party vendors, data compromise, irregularities in supply chain management, and the adverse and damaging effects of non-compliance. 

Can I Create My Own System of Screening Third Parties?

Yes, you can create your third-party service provider screening system. A third-party vendor screening system enables companies and compliance officers to weed out unreliable, corrupt, unethical, or high-risk third-party vendors in their extended organizations. This requires screening your third parties across various risk factors using databases, watch lists, and other resources.

However, it’s crucial to note that a robust third-party screening system needs more than just access to tons of data. A sound screening system depends on your compliance team’s ability to understand organizational risks and how to interpret the data you collect so you can make educated decisions about the service provider relationships you have. 

The following points can help you create a good screening program:

  • Understand the compliance risks your company faces
  • Determine who your third-party service providers are
  • Tailor your screening process thoughtfully
  • Use reliable screening data and partners
  • Have procedures and policies in place to handle various levels of vendor risk
  • Audit the effectiveness of your screening program frequently

Creating a successful screening system requires planning, discipline, and data. However, you’ll make educated decisions regarding your third-party vendor relationships once you collect reliable screening data.

How Do You Create an Incident Response Plan?

Sadly, nearly every company will experience system breaches, with some of those breaches affecting your company’s cybersecurity.

If breached, expect to pay federal/ municipal fines, legal fines, and increased monthly card processing fees. However, a well-implemented incident response plan can reduce breach impact, decrease negative press, cut penalties, and help you get your company up and running as quickly as possible. 

A successful incident response plan should address suspected data breaches in several phases while also addressing specific needs. The incident response plan phases include:

  • Preparation: This phase involves the following steps:
    • Ensure your staff gets proper training concerning their incident response responsibilities
    • Develop and frequently conduct tabletop activities to analyze your incident response plan
    • Ensure all aspects of your response plan are approved and funded in advance
  • Identify: This is the stage where you determine if your company has been breached by assessing the deviations from ordinary activities. For example, organizations learn they’ve been breached by discovering security breaches internally, when customers complain of fraudulent charges, or when their banks inform them of potential breaches based on fraud reports. 
  • Contain: When a company is aware of potential data breaches, it’s normal to want to fix the issue immediately. However, you could accidentally destroy valuable forensic data if you don’t take the proper steps and involve the right people. Forensic experts use this data to establish how and when the security breach occurred and craft a plan to prevent future security breaches. So, when you discover a security breach, remember:
    • Don’t make hasty decisions.
    • Don’t panic.
    • Don’t format or re-install your systems(yet).
  • Eradicate: Once you contain an attack, you must find and eradicate procedures, policies, and technology that caused the breach. That means you should remove all malware, systems must be patched and hardened, and you should update your systems.  
  • Recover: Recovering from a security breach involves restoring and returning affected devices and systems back into your business environment. During this phase, it’s crucial to get your business operations and systems up and running again with no fear of another cyberattack. 
  • Review: After a forensic investigation, meet with your incident response team to discuss what you’ve learned from the security breach. Next, review all the activities to prepare for the next security attack. Here, analyze everything about the attack. Identify what worked and what didn’t in your incident response plan. Then update your response plan. 

Is Third-Party Risk Always High?

Are you still doubting the importance of TPRM? These numbers show that third-party risk is always high, especially in today’s cloud-first world, and thus, it’s vital to think about the best ways to manage third-party risk to mitigate cybersecurity risk. 

For instance, in 2018 and 2019, cybersecurity risks rose by 11% and 67% since 2014. A 2020 report by Phenomenon Institute also shows that between 2018 and 2019, 53% of businesses experienced at least one third-party-related security breach, with remedy expenses of $7.5 million. 

Further, a recent Osano report notes the direct link between poor privacy practices and security breaches. An average American shares data with over 750 third-party service providers. Of those companies hit with cybersecurity breaches, third-party service providers were responsible for two of three cyber attacks. 

Post-pandemic, third-party data breaches are even more of a concern for compliance and legal leaders. 

Can I Prevent Third-Party Risk Completely?

Although you can never prevent third-party cyber attacks , unauthorized access, and data breaches completely, it’s crucial to work collaboratively, not combatively, with third-party service providers to eradicate risks and fix security risks quickly.

Further, you can’t prevent third-party risks completely because all third-party service providers have varying amounts of inherent risks that are found in the nature of services or products they offer. Therefore, after validating external and internal controls, you’ll be left with residual risk after mitigating the inherent risk. 

For more on addressing third-party risk, click here. 

What Do I Need to Know About Mitigating Third-Party Risk?

To mitigate third-party risks, you should note that a service provider’s security can and will change significantly throughout your relationship. Thus, you must monitor their security controls regularly. The problem is, most companies don’t monitor their third-party vendors regularly. Instead, they rely on point-in-time risk assessments, such as security questionnaires or audits, which often offer a snapshot overview of a company’s security posture.

There’s definitely a place for vendor risk assessments because they pinpoint issues often missed by external auditing solutions; that’s why RiskRecon has tools to help you automate audits and security questionnaires.

How Can RiskRecon Help Me?

Managing third-party risks is both extremely crucial and complicated for organizations today. In addition, third-party risks are poised to increase as more companies continue to outsource more and more of their business operations. Thus, companies today must improve their TPRM capabilities.

That’s where RiskRecon, a Mastercard Company comes in handy. We can help you identify third-party risks and quickly act on cybersecurity risks that have the highest potential to damage your company. Also, we can help you manage third-party risks via personalized action plans, actionable insights, and in-depth security ratings. Sign up here for a RiskRecon demo to discover why RiskRecon is the perfect solution for managing third-party cybersecurity risk at scale.