What is 3rd party risk?May 17, 2022
What is 3rd party risk? Third-party risk is a security threat from outside organizations that might gain access to a company’s sensitive data.
This type of risk is often overlooked when planning a security strategy because it doesn’t usually originate from a failure of your security systems; rather, it comes from weak security in one of your contractors.
Any third-party with access to your systems or data presents a possible third party risk.
When hackers gain access through a third party, the results can be catastrophic. Third-party hacks create legal consequences for your business, in addition to the financial and reputational damage they cause.
Third-party hacks are becoming increasingly common. A 2019 survey found that 44% of companies experienced a significant data breach because of a third-party vendor.
Given the facts, it’s essential to manage vendor access and security closely.
How can you protect against third-party risk? This article will cover the basics, giving you tools to manage the risk and keep sensitive data safe.
What is third-party risk management?
Third-party risk management focuses on identifying and mitigating risks from suppliers, vendors, or contractors: any organization that could have access to your sensitive business information.
To maximize the effectiveness of your third-party risk management, you should first identify the levels of risk posed by each contractor and vendor.
You’ll want to make a list of high-risk and low-risk vendors while also looking at how necessary the contractor is to your business: can you easily find a substitute, or is this vendor necessary?
Before moving to lower-risk companies, focus your energy first on critical third parties that could pose a threat.
Once you’ve organized your vendors into tiers, you’ll want to focus on risk assessment and mitigation.
Evaluate each vendor to determine what their security looks like, what type of access they have in your systems and areas where their practices could threaten your security. Then, you’ll need to put together a mitigation plan to eliminate or reduce any significant risks.
Evaluate whether a risk is big enough to merit replacing the vendor or whether a few extra security measures will be sufficient.
It’s also good practice to set up standards and automated processes for new vendors.
Require them to adhere to minimum security standards, and automate their integration into your systems to minimize the risk of unintentional error and keep things streamlined.
What are some third-party risks?
Third-party hacks have three major impacts on your business.
Reputationally, they can harm your brand image, keeping prospective customers away.
Financially, they can decrease your profits by demanding a ransom or stealing valuable intellectual property.
Operationally, hacks can shut down your website, disrupt business, and create significant downtime. Here are a few common third party risks to keep in mind as you’re considering risk management:
Often, hackers will exploit security vulnerabilities in your vendors to access internal files.
This often results in IP theft, where hackers steal your intellectual property. IP theft can create significant financial harm for your business through lost ideas or design concepts.
Another common strategy used by hackers is to install harmful malware on your systems that can disrupt operations from the inside and steal sensitive client data.
Malware can quickly bring your business to a halt and tarnish your reputation with clients.
Similar to malware, hackers use third-party security vulnerabilities to launch ransomware attacks, locking you out of your systems and data until you pay a ransom.
This attack can significantly disrupt your business operations, lowering profits and increasing costs.
Several major companies have discovered firsthand the risks of a third-party breach in recent years.
Target was initially breached by a third-party HVAC supplier in 2013, losing over 40 million credit card numbers.
JP Morgan Chase experienced a costly breach in 2014 when its third-party data systems manager was hacked.
As these examples show, all companies are at risk of an attack. Whether you have five employees or fifty thousand, you can be vulnerable to a third-party breach.
What is third-party compliance risk?
Third-party risk is especially important when it comes to legal compliance.
Suppose you give a third party access to data or systems, and they cause a security breach. In that case, you’re responsible for that lost information, even if the violation was caused entirely by the vendor.
You can be held legally accountable, and in some cases, you might be slapped with a hefty fine.
How do you mitigate third-party risk?
It’s essential to have a risk management strategy in place to protect against third-party risk.
Ensure you have a coherent security plan across vendors and uniform standards for all your contractors.
Limit access for third-party vendors, only giving them the data and system access that is essential.
You’ll also want to keep close track of who has access to what data. Automation is especially helpful with this task.
An effective third-party risk management strategy is more straightforward when you have a trusted security partner.
Expedient Technology Solutions can help you assess the risks posed by vendors, develop a risk mitigation plan, and put a system in place to track each vendor and their level of access.
Third-party risk is an often-overlooked challenge for businesses that tend to focus on internal security without thinking about the vendors that have access to sensitive information.
Yet the legal, financial, and reputational consequences of a third-party breach mean that you need to pay careful attention to your risk exposure.
Fortunately, a third-party risk management strategy doesn’t have to be stressful.
Expedient Technology Solutions can help you identify and mitigate risks posed by any third party.