In this competitive age, nearly every business outsources some of its operations to increase profitability and reduce costs.
But it’s becoming increasingly tricky to ensure that third-party solutions providers strengthen the company, not weaken it. Third-party relationships usually come with various risks, including reputational, strategic, information security, regulatory, and financial risks.
To minimise the impact of third-party vendor risks, more and more companies are continually improving their Third-Party Management (TPM) programs.
The scope of TPM is expanding with companies deploying data compliance solutions to ensure third parties maintain IT information confidentiality, avoid unethical practices, and maintain a healthy working environment.
So, developing a strategy to optimise third-party relationships is essential to sustain high quality and performance levels. This article uncovers some best practices for managing third-party security risks.
What is Data Compliance?
Data compliance is the process that ensures that the organisation is following various laws, regulations and standards related to data protection, storage, and other activities.
Data compliance involves establishing policies, protocols, and procedures to protect business data from unauthorised access, use, malware, and other cyber threats.
Examples of Cyber Security Incidents Involving Third Parties
Below explained are some examples of cybersecurity incidents that involved third parties:
- Atrium Health: In 2018, Atrium Health experienced a data breach, exposing the personal information of over 2.65 million patients. The cause of this data breach was compromised servers used by the company’s third-party billing vendor, AccuDoc Solutions.
- General Electric (GE) data breach: In 2020, General Electric (GE) suffered from a data breach caused by its third-party vendor, Canon Business Process Services. Because of a compromised email account, the company’s beneficiaries’ and employees’ personally identifiable information (current and former) was exposed publicly.
- Amazon data leak: In 2020, Amazon, PayPal, and Shopify encountered massive data leaks. A third-party database storing nearly eight million UK online shopping transactions was exposed publicly by posting online. It’s not the first time Amazon encountered a third-party-originated incident. In 2017, the attackers hacked several third-party vendors of Amazon to use their credentials to post fake deals.
What is Third Party Risk Management?
Third-Party Risk Management, or TPRM, is a discipline around identifying, assessing, and managing risks associated with outsourcing third-party vendors providing services or products to your enterprise.
With third-party and vendor risk assessments, you can determine how much exposure your company can take when outsourcing a business process or entrusting your data to another third party.
By understanding the potential security risks related to third-party relationships and taking proactive actions such as data compliance, companies can mitigate the impacts of these risks and add value to their business.
Why is Third-Party Risk Management Important?
The third parties involved in the data breach can cause a massive loss to the enterprises. As per Ponemon’s 2021 Cost of a Data Breach Report, vulnerable third-party software can cause a data breach, and costs can increase by more than $90,000.
Moreover, with time, third-party data breaches are increasing significantly. InfoSecurity Magazine states that 44% of companies reported experiencing a security breach in 2020. Of those organisations, 74% stated that the breach occurred because of giving too much-privileged access to third parties.
Understandably, companies often need to provide third parties access to their systems and data for successful operations.
But when doing so, you should deploy effective third-party risk management to protect your business data against unauthorised access, manipulation, cyberattacks, malware, or other unethical practices.
The bottom line is having a sound TPRM strategy and implementing data compliance solutions can provide the following given benefits to your company:
- Help mitigate third-party risks associated with data breaches and cyberattacks.
- Ensure compliance with industry regulations and standards.
- Build trust with partners and customers.
- Create tangible business advantages, including increased productivity and revenue, improved customer satisfaction, and reduced costs.
What are the Best Practices for Third-Party Vendor Risk Management?
The following mentioned are the best practices for third-party vendor risk management:
No company can’t mitigate third-party vendor risk until they understand the type of risk they face.
Each third-party risk is unique and changes depending on whether you work with a third-party vendor, supplier, contractor, partner, or someone else. So, you must determine if your company’s risk is a process, operational, compliance, or reputational risk.
Manage and control risks.
Once you identify the type of risks, you should focus on contracts governing third-party relationships. A comprehensive and carefully drafted contract outlining the parties’ rights and responsibilities can help you better manage third-party relationships.
In addition, frame policies and implement controls to mitigate risks. Appropriate monitoring and deploying effective test data management tools are key in ensuring the proper working of risk-mitigating controls.
Conduct Third-Party Screening, Onboarding, and Due Diligence
With an effective third-party screening and due diligence program, you can understand the third parties better and, thus, choose the right firm. Some leading companies take a risk-based approach to screening third parties.
During the third-party onboarding process, you can capture complete information about the vendor and necessary certifications, contracts, and documents. Onboarding also helps determine the level of risk monitoring required for each vendor.
Many companies use screening data providers to receive real-time data feeds from third parties. You can also screen the suppliers against global sanctions lists, law enforcement, global regulations, PEPs, and state-owned enterprises. The due diligence also includes identifying risks and areas continuously.
Evaluate the Effectiveness of the TPM Program
You must implement a robust process to evaluate the effectiveness of your company’s TPM program, including policies, processes, code of conduct, compliance surveys, audits, and controls.
Make sure the allocated TPM resources are available and working as planned. In addition, keep an eye on your third-party ecosystem. Implement high-performance data compliance solutions to know whether compliance requirements are being met.
The third-party risk landscape has become more complex than before. In today’s corporate world, it’s critical to formulate an effective TPM strategy to protect your company’s reputation and revenue.
So, gain a 360-degree view of the third-party ecosystem and deploy a proactive approach to manage and control associated risks. Prepare to manage supply chain disruptions by identifying hidden risks and following well-defined business continuity plans.
Moreover, utilise technological solutions such as data compliance or test data management tools to manage the third-party ecosystem seamlessly.