What is a Third-Party Risk?
Third-party risk is the possible risks or threats resulting from interactions with external parties. In every business, there are third-party partners, such as suppliers and contractors. Each of the eternal parties represents a security risk to the company. Third-party risks can affect an organization’s customer and employee data, IT networks, and financial information.
Key Takeaways
- Third-party risk is the possible risks or threats resulting from interactions with external parties.
- Third-parties with inadequate security introduce risks to your organization.
- Managing third-party risks is essential to protecting your business from external attacks.
- Third-parties with access to the company’s internal systems but has vulnerabilities, such as outdated operating systems or software programs, are a security risk.
How Does a Third-Party Risk Occur?
Third parties consist of external individuals or organizations that offer specific products and services to a business. When delivering the services, the vendors may need to access privileged systems, such as the business’s internal network, servers, applications, and physical premises. Connecting to the network using a device with inadequate security may enable hackers to gain unauthorized access through the third-party’s device or system.
From time to time, third parties may communicate with an enterprise through email communication. Meanwhile, Cybercriminals may target untrained or unaware third-parties with phishing emails to hack their email accounts. If the phishing attack becomes successful, the attackers can use the third-party’s email accounts to trick the business into revealing sensitive information, such as financial transactions.
Importance of Managing Third-Party Risks
Managing third-party risks is essential to protecting your business from external attacks. There are cases where hackers use a third-part with insufficient cybersecurity defenses to penetrate a secure network.
Managing third-party risks means ensuring all your external business partners have the same level of protection or higher in comparison to your business environment. It involves setting a policy describing the minimum cybersecurity requirements a third-party must meet before agreeing to engage in any business transactions.
Also, managing your third-party risks protects your customer and employee data from attacks and breaches. Many compliance regulations, such as General Data Protection Regulation (GDPR), impose hefty fines if a data breach leads to personal information loss. When you manage third-party risks proactively, you protect your data’s privacy, enabling you to comply with various regulations.
It is vital to manage third-party risks to maintain a good reputation. Companies that record data breaches suffer reputational damage, which may drive customers to businesses with more secure data protection safeguards. Managing third-party risks minimizes the possibility that attackers can use them as attack vectors to attack your business. Third-party risk mitigation measures are vital to maintaining a good reputation.
How Third-Parties Influence Security Risks
Enterprises depend heavily on third-parties, such as supply chain partners, contractors, and vendors, to meet their customer demands. Third-parties assist businesses to maintain their daily operations. However, contractual partnerships come with different cybersecurity threats and risks that can result in severe attacks.
On the other hand, cybercriminals use sophisticated malware and attack methods to target the weakest links when targeting a specific organization. They exploit the security weaknesses to gain access and escalate privileged access to sensitive systems or data.
Third-parties with access to a company’s internal systems but has vulnerabilities, such as outdated operating systems or software programs, are a security risk as hackers will attack them to establish a foothold. Once they have gained access, attackers can move laterally on the network while escalating their access permissions to critical information assets.
Some of the cybersecurity attacks that result from third-parties with weak cybersecurity procedures or vulnerable devices include credential theft, data exfiltration, theft of intellectual property, fileless malware attacks, and network intrusions.
Best Practices for Managing Third-Party Risks
The best practices for managing third-party risk include:
- Develop a Framework for Assessing Third-Parties
The key to effective third-party risk management is to develop a risk assessment framework to serve as a standard for assessing third-parties. The framework should be based on industry standards, such as the NIST Risk Management Framework.
The essence of developing and maintaining a risk management framework is it assists a company in identifying which third-parties meet the recommended cyber-preparedness levels. It ensures that a company only enters into contractual agreements with third-parties who have a consistent cyber protection level.
- Define Acceptable Controls
It is essential to ascertain that the third-parties achieve the same risk tolerance as your organization. You can do this by defining a list of adequate controls for protecting third-party systems from various risks.
For example, when developing a third-party risk management framework or policy, you can list and describe the minimum controls a third-party must implement before winning a contract. Such security measures include encryption, data segregation, frequent security patching, and employee training and awareness programs.
- Establish Third-Party Risk Compliance
Once you have defined the required controls third-parties must meet, you must also define metrics for measuring third-parties’ compliance. Examples of metrics you can use to measure risk compliance include time to identifying risks, time to mitigating identified risks, and time to recover from the risks.
- Consider Continuous Third-Party Monitoring
In order to ascertain that third parties maintain the required risk management procedures and acceptable risk levels, a business should monitor them continuously. One way to continually monitor third-parties is by implementing that can monitor a third-party’s risk ecosystem in real-time and provide real-time visibility into their IT risk surface.
- Understand Possible Cyber Risks
Every third-party is capable of introducing different risks to a company depending on their business relationship. You must be careful to determine all the possible risks that come along with a specific third-party to inform your third-party risk assessment requirements and how to prepare.
Take note of the various software, devices, data, and networks accessible to the third-parties and then develop a risk inventory. The risk inventory can enable you to map the third-parties against standardized risk taxonomies, estimate the severity and likelihood of each risk, and rank the third-parties according to their potential risk influence on the company.
- Identify all Suppliers and Fourth Parties
Some businesses have a long chain of suppliers and third-party partners. Some third-parties have fourth-parties, fifth-parties, and so on. It is essential to identify all your third-party partners at all points in the chain.
While your immediate third-party partners may have the recommended cybersecurity levels and risk preparedness, they may have other partners with insufficient risk management processes. Identifying them is vital since they are a weak link that may lead an attacker straight to your business.
