What is Third Party Cyber Risk Management?

Third party cyber risk management (TPCRM) is crucial to protect your business from the risks introduced by vendors and partners. Third-party relationships are essential to business operations, making it vital to manage these risks effectively. This guide will help you manage those risks effectively.

What is Third Party Cyber Risk Management?

Third party cyber risk management (TPCRM) is about evaluating and removing the cybersecurity risks that vendors and partners bring into a company’s IT environment and infrastructure. This type of risk management is about identifying the potential risks and vulnerabilities in the vendor ecosystem and mitigating them so your business is protected from the threats.

Since vendors and suppliers pose such big cybersecurity risks, TPCRM is different from general third-party risk management which covers a wider range of risks such as financial stability and operational dependency. For example in a cloud-first world where data security and control in cloud environments is key. Effective TPCRM helps you understand these cyber threats and improves your overall risk profile.

“Data makes companies these days — it’s the data you have and how you use it that provides real value to customers,” says Kyle Abbey, Senior Manager, Cyber Security at Kyriba

The benefits of a good TPCRM program are many. It helps you improve your risk profile, secure your data and control your cybersecurity. By reviewing third parties for their security practices and role in your business, TPCRM gives you a structured way to manage the inherent risks of third party relationships.

Third Party Risks

Bringing third parties into your business brings cyber risks with it. Different vendor relationships can present varying levels of risk, with some posing a significant risk to your organization and customers' privacy. Key among these are data breaches, supply chain attacks and operational disruptions. High profile breaches like Target, Equifax, SolarWinds and Marriott show the risk of third parties.

Data Breaches

Reputational and financial damage, privacy risks and compliance issues can result from third party data breaches of third party vendors. It is crucial to use accurate security ratings to assess the security practices of third-party vendors. For example the 2016 Uber data breach was caused by a third party misconfiguration of an AWS bundle and exposing over 50,000 Uber drivers’ data.

LinkedIn disclosed a data breach in 2023 that affected over 19.7 million users due to a vulnerability in a third party software library. These incidents show how third party vulnerabilities can have far reaching consequences, eroding user trust and causing operational disruption.

Other examples include the breach of the Metropolitan Police’s IT supplier in August 2023 which exposed personal data and the breach of Okta in October 2023 which was caused by a third party vendor and exposed personal and healthcare data. These breaches show the need for strong third party cybersecurity to protect sensitive data and business continuity.

Supply Chain Attacks

Supply chain attacks which pose big risks by bypassing secure defenses to hit multiple organizations exploit vulnerabilities in third party vendors or suppliers. In 2023 alone, ransomware attacks increased by 70%. These attacks use the trusted relationships between a primary business and its vendors to introduce malware or other malicious activity. For example the SolarWinds attack showed how one vendor could be compromised to hit many organizations.

The interconnectedness of modern business means one compromised vendor can have a domino effect and hit multiple organizations. These attacks are hard to detect as they often exploit the less secure connections in the supply chain. Therefore they require constant monitoring and strong security to mitigate the impact.

Operational Disruption

Operational disruption from third party issues can have a big impact on business continuity and affect a large user or customer base. Operational disruptions from third-party issues can severely impact business operations, leading to significant setbacks. For example in December 2023, 60 credit unions were severely impacted by a ransomware attack on their third party cloud IT provider Ongoing Operations. This incident shows how reliant organizations are on their third party vendors for critical services and the consequences of vendor disruption.

Another example is the operational disruption to Dollar Tree in 2023 which affected around 2 million people due to a breach of their service provider Zeroed-In Technologies. These examples show the need for contingency plans and strong third party risk management.

How to Manage Third Party Cyber Risk

Managing third party cyber risk is a multi-step process of identifying and categorizing vendors, conducting a thorough third party risk assessment, and implementing explicit guidelines and risk mitigation strategies.

This section covers the steps to take a holistic and proactive approach to managing third party cyber risk.

Initial Risk Assessment

The initial risk assessment is the first step in third party cyber risk management. Before onboarding a third party, you need to do a risk analysis and due diligence to identify potential risks and build an accurate, comprehensive, and up-to-date inventory of third parties.

This classification helps to assess the inherent risk to the organization. Common evaluation methods are security questionnaires, penetration tests, and risk scoring models. These tools help to assess the security posture of a vendor and choose vendors based on unique risk factors.

During the initial assessment, you need to evaluate the vendor's cybersecurity policies, incident response, and compliance with relevant regulations and standards. Regular risk assessments are needed to identify weaknesses and ensure vendors' security practices meet the organization's minimum security standards.

Continuous Monitoring

Continuous monitoring is key to third party cyber risk management for real time threat detection and up to date vendor risk profile. It provides better coverage, real time data and targeted assessment activities. Continuous monitoring allows organizations to be proactive by uncovering issues and detecting suspicious activity in real time. This proves improved security posture stability and advanced threat awareness.

However continuous monitoring can be resource heavy and hard to sustain without the right technology or people. Using continuous monitoring tools helps organizations keep track of changes to vendors risk profiles and adjust their security accordingly. Some benefits of using continuous monitoring tools are:

• Tracking changes to vendors risk profiles
• All vendor risk assessments are up to date
• Automated alerts for parties due for reassessment

These tools can help organizations simplify their vendor risk management and overall security.

Incident Response Planning

An incident response plan is key to managing third party cyber risk. This plan should include:

• Pre defined roles and responsibilities for swift action during a security event
• Evaluating the vendors incident response plan to ensure they can handle a breach effectively
• Regular testing and updating of the incident response plan to cover new types of cyber threats involving third parties.

Incident response planning should also tie in with the organization's overall security program to ensure a coordinated and efficient response to incidents. This will reduce the impact of a breach and maintain business continuity.

Automation in Third Party Cyber Risk Management

Automation is key to simplifying third party cyber risk management, efficiency and minimizing human error. Some benefits of using automated solutions are:

• Filling and evaluating cybersecurity questionnaires
• Mapping the digital supply chain
• Identifying vulnerabilities
• Providing accurate and actionable information on third party risk

These automated solutions have years of industry experience to deliver these benefits.

Automated workflows in risk management tools help to continuously assess third party risk, streamline processes like evaluating, remediating and monitoring risk. These tools use AI to send cybersecurity questionnaires to vendors, reducing response time by a huge amount. AI models in automation tools can assess third party attack surfaces with high accuracy, so potential vulnerabilities are identified and fixed quickly.

A single platform to manage vendors can give you a single view of all vendor information including historic assessments. This gives continuous monitoring of third party vendors, alerting you to any security changes and helping with ongoing risk assessments. By using automation you can evaluate and approve vendors better and avoid backlogs in the approval process.

Third Party Cyber Risk Best Practices

To have a strong cybersecurity posture you need to follow third party cyber risk best practices.

• Aligning executive teams
• Prioritizing vendors by risk
• Regular security audits
• Clear contractual obligations.

In this section we will look at various practices that give a holistic approach to third party management so all third party risks are addressed in third party risk management.

Prioritizing Vendors by Risk

Prioritizing vendors by risk helps organizations focus their security efforts and allocate resources effectively. Identifying vendors that pose a significant risk is crucial, especially those handling sensitive data or critical operations. Organizations can use a matrix to categorize third parties by risk they pose, low, medium or high.

Risk scores generated by risk management technology can often be used to determine the risk level. Segmenting vendors into criticality tiers based on factors such as inherent risk, impact on operations and contract value helps to prioritize security efforts and resource allocation.

Once the risk level of each vendor is determined the organization can then implement a risk reduction strategy that matches their risk appetite. This will help manage vendor risk. This will mean higher risk vendors get more attention and resources so threats are mitigated more effectively.

Regular Security Audits

Regular security audits are key to ensuring industry compliance and identifying third party security gaps. These audits should:

1. Identify and fix problems at third parties
2. Ensure they follow the required security controls and protocols
3. Do internal and external assessments to get a full view of the third party’s security posture.

Regular security audits help organizations keep up to date security ratings for their vendors so any changes to the vendor’s security posture are identified and fixed quickly. This is key to having a strong security program and mitigating cyber risk.

Clear Contractual Obligations

Clear contractual obligations are key to defining security requirements and expectations in third party relationships. Contracts with third parties should include incident reporting requirements, how quickly they must notify the organization in the event of a cyber incident. Incident reporting protocols means third parties are obliged to notify the organization quickly in the event of a security breach.

Contracts should also include security practices and protocols, what are the responsibilities of both parties for data protection. A signed attestation from the vendor confirms their accountability for the information provided, so they will follow the agreed security controls. This gives a clear and enforceable framework for managing third party cyber risk.

Third Party Cyber Risk Management Challenges

Despite best efforts, third party cyber risk management has its own set of challenges. These include lack of visibility, engagement difficulties and resource constraints which can hinder risk management programs.

Understanding and addressing these challenges is key to developing a third party cyber risk management strategy.

Lack of Visibility

A major challenge in third party cyber risk management is lack of visibility over vendor performance, security posture and compliance. Organizations struggle to track individual vendor performance and risk mitigation activity across all third parties.

Lack of visibility means missed risks, slow workflows and miscommunication. Without a third party risk management (TPRM) programs visibility over third party risk is difficult or impossible.

Visibility requires a holistic approach that includes risk assessments and advanced monitoring tools. By clearly communicating any gaps found, organizations can make informed decisions and take proactive action to mitigate risks. Visibility is key to having an effective and efficient third party cyber risk management programs.

Engagement Difficulties

Engagement difficulties arise from misunderstandings about cybersecurity requirements and different perspectives between organizations and third parties. Vendors may not implement robust cybersecurity because of perceived cost and lack of understanding of the benefits. Misunderstandings about cybersecurity requirements can complicate engagement and lead to inconsistencies and gaps in protection.

To overcome these challenges clear communication and standardization is key. Managing correspondence and remediation through a single TPRM solution will encourage vendor engagement in cybersecurity. A standardized process for evaluating and verifying third party cybersecurity will help bridge the gap between different interpretations of cybersecurity terms and requirements.

Resource Constraints

Resource constraints are a major challenge for organizations in managing third party risk. Many organizations find managing third parties is overwhelming and resource intensive. Third party risk management requires significant resources which many organizations don’t have. Monitoring each third party consistently is difficult due to resource constraints and changing risk landscape.

To overcome these constraints organizations need to focus on the most critical vendors and risks. Some options to consider:

• Automate and leverage advanced monitoring tools to simplify processes and get real time visibility of vendor risk
• Increase third party risk management budget to allocate resources better
• Conduct regular assessments and audits of vendors to ensure compliance and identify risks

By doing this organizations can manage third party risk better and reduce issues.

Third Party Risk Management Solutions

Evaluating third party risk management solutions requires looking at their ability to manage vendor lists, monitor compliance and automation. These solutions should allow users to create, manage and modify vendor lists for continuous monitoring and ensure all information is up to date. Monitoring legal and regulatory compliance is key including tracking new litigations and changes in directors’ status.

Good TPRM solutions should have:

• Pre-built questionnaires and scoring models to simplify data collection
• Environmental, social and governance (ESG) risk assessments
• Diversity and inclusion (D&I) risk assessments
• Anti-bribery and corruption posture assessments
• Automation of risk assessment process including collection of disclosures and calculation of risk ratings

Automation is key.

Popular TPRM solutions have features to manage third party risk. These tools have:

• Contextual third party risk management by mapping the full threat landscape
• Continuous monitoring and re-scoring of risk profiles
• Identifying early warning signs
• Integration of continuous monitoring data into overall risk reporting

By using these features organizations can get visibility of vendor risk and make informed decisions.

Vendor Risk Management Teams

Vendor risk management framework and policy maintenance is a key responsibility of vendor risk management teams. They are responsible for:

• Ownership and maintenance of the vendor management framework to ensure it aligns with organizational goals and regulatory requirements
• Reporting to senior management or the board of directors
• Preparing for regulatory exams or audits

Keeping detailed records is key to compliance and to identify areas for improvement. Vendor risk management teams have:

• Conducting due diligence risk reviews with subject matter experts
• Overseeing vendor risk management tasks
• Ensuring timely responses and compliance to standards
• Playing a key role in third party cyber risk management
• Ensuring alignment to the organization's overall cybersecurity strategy

By providing clear guidance and open communication with vendors these teams ensure everyone knows their responsibilities and are working towards the same goal of reducing cyber risk. Good vendor risk management teams are key to a strong third party risk management program and protecting the organization from threats.

Case Studies: Third Party Cyber Risk Management in Practice

Real world case studies from various industries show the importance of a holistic approach to third party cyber risk management. These examples show different practices in cyber supply chain risk management and how mature organizations manage third party risk.

For example an insurance company successfully managed third party cyber risk by engaging with stakeholders, so all relevant parties were involved in the risk management process.

The MOVEit vulnerability in June 2023 affected many organizations including several US government agencies, showing the challenge of managing third party cyber risk. The CL0P Ransomware gang exploited this vulnerability for financial gain, targeting third party vulnerabilities and the real world impact of those risks.

These brief examples show the importance of stakeholder engagement and the need for different risk management approaches to different industry challenges.

By learning from these examples organizations can adopt best practices and develop a third party cyber risk management strategy that addresses their own challenges and vulnerabilities. By being proactive and leveraging others’ experiences, organizations can strengthen their overall cybersecurity and resilience.

FAQs

Why is continuous monitoring important in third party cyber risk management?

Continuous monitoring is key in third party cyber risk management because it allows real time threat detection and organizations can keep their vendor risk profile up to date so they can detect suspicious activity proactively.

What are the common challenges in third party cyber risk management?

Common challenges in third party cyber risk management are lack of visibility, engagement difficulties and resource constraints which can make risk management programs ineffective. Addressing these challenges is key to a strong TPCRM.

How can automation help in third party cyber risk management?

Automation in third party cyber risk management can simplify processes, increase efficiency and reduce human error. AI powered platforms can complete cybersecurity questionnaires, map the digital supply chain and identify vulnerabilities and provide real time visibility into third party risk.

What are the best practices for third party cyber risk management?

Best practices for third party cyber risk management are aligning with executive teams, prioritizing vendors by risk, regular security audits and clear contractual obligations.

Conclusion

In summary, third party cyber risk management is a key part of an overall cybersecurity strategy. By understanding the risks, managing the steps, automating and following best practices organizations can strengthen their overall cybersecurity and protect themselves from threats. Lack of visibility, engagement difficulties and resource constraints must be addressed to make risk management programs work.

Take the next step in strengthening your cybersecurity defenses - schedule a demo with Recorded Future and discover how our platform can transform your third party cyber risk management.