Why Enterprises Must Implement a Third-Party Data Risk Management Strategy

What’s the very last thing a business wants to tell its customers? Without a doubt, it’s that their data may have been compromised due to a third-party vendor data breach.

Today’s cyber landscape is more complex, riskier, and costlier than ever. Most cybersecurity experts and professionals know a majority of cyber breaches are the result of human error. However, they all too often (and mistakenly) associate these human-caused digital infringements as inside jobs – an employee innocently clicks on a malicious link sent via email, or the internal IT guy or gal forgot to perform a software patch or update.

Still, believing an organization’s internal staff is primarily responsible for these breaches could be an even more catastrophic mistake. The one place CISOs and cybersecurity managers often fail to look when it comes to a human-error-caused breach is at their outside, third-party vendors.

Did you know that 60% of all data breaches are initiated via third-party vendors?

To add insult to injury, according to a recent study by third-party cyber risk intelligence provider Black Kite, unauthorized network access is the most common root cause of third-party attacks, initiating 40% of the third-party breaches last year.

There’s a disconnect when it comes to third-party data risk

There is a startling disconnect between an organization’s perceived third-party data risks and the security measures it implements to avoid such threats. As a result, organizations are not taking the necessary steps to reduce remote access threats and are exposing their networks to security breaches and liabilities.

A recent Ponemon Institute study revealed that 44% of organizations surveyed have experienced a breach within the last 12 months, with 74% stating it resulted from giving too much privileged access to third-party vendors.

As businesses increasingly rely on outside vendors for increased efficiency and to provide specialized services such as IT infrastructure management, cloud services, cybersecurity, or any function that requires access and handling of sensitive data and mission-critical resources, they must take into account the consequences of failing to implement a third-party risk management strategy.

According to Gartner, cybercriminals increasingly use third parties, such as software vendors, to attack essential targets. Organizations often have no centralized control over these third-parties. The relationships are often complex and unsecure. As a result, there is an increased risk of data breaches, cyber-attacks, and other security incidents.

Deloitte recently identified three key emerging trends that drive increased third-party risk:

1. Increased incidents related to vendors: Suppliers are causing more disruption, and risks are not being managed. Threat examples include information security, privacy, and anti-fraud management.

2. Regulators are focusing on supplier risk: Regulators are increasing the pressure on organizations to better manage their supply chain risk.

3. Pressures from economic volatility: Economic conditions mean tighter margins for suppliers and an increased risk of supplier disruption.

Because of this grim reality, organizations need to shift their mindset when protecting not only their data but also their customer and partner data.

Shifting the mindset to risk quantification

This mindset shift needs to include risk quantification, in that it not only needs to assess the types of risks out there and any potential vulnerabilities, but to also use it as an indicator of how to manage these risks. A third-party risk management strategy is the best way to quantify which risks your third-party vendors might contribute to.

Here are some reasons why enterprises must quantify the risks and implement a third-party data risk management strategy:

1. Protect sensitive data: Enterprises are responsible for protecting sensitive data, such as personally identifiable information (PII) and financial data. A third-party data risk management strategy can help ensure third-party vendors are properly vetted and adhere to the enterprise’s security procedures, policies and standards.

2. Compliance with regulations: Many industries have regulations that govern the handling and protection of data. Enterprises must ensure third-party vendors comply with these regulations, as they can be held responsible for data breaches.

3. Reputation management: A data breach or security incident involving a third-party vendor can significantly impact a business’s reputation. Implementing a third-party data risk management strategy can help mitigate these risks and protect the enterprise’s public perception.

4. Business continuity: A security incident involving an outside vendor can disrupt business operations and result in significant financial losses. A third-party data risk management strategy can help ensure these vendors have the necessary security controls to prevent such incidents.

Best practices in minimizing third-party data risk

The first step in implementing a third-party data risk management strategy is to identify all vendors your organization works with, including their contact information and the services or products they provide.

Here are some best practices to ensure your third-party vendors remain compliant and that your organization’s protect surface is indeed protected:

1. Assess the risk: Once you have identified your vendors, assess the risk associated with each. This assessment should include the type of data they will be handling, the level of access they will need to perform their job, and the security protocols they have in place.

2. Implement a zero trust policy: Zero Trust is quickly evolving as the go-to cybersecurity defense mechanism to reduce cyber threats. As the threat landscape continues to expand and progress, organizations must implement Zero Trust policies that outline the minimum security requirements vendors must meet to be granted access to your systems and data. This policy should be based on the risk assessment and include access controls, data handling procedures, and security training requirements.

3. Ensure all third-party vendors have their own cybersecurity risk & monitoring plan: Perform a risk assessment of each vendor to determine the policies and procedures they have in place to mitigate a threat. This assessment should include evaluating their security controls, data handling practices, incident detection and response protocols, and compliance with regulatory requirements.

4. Verify that your vendors also follow best practices with THEIR vendors: When it comes to enterprise networking, there are many hands in the pot. To best ensure your vendors are compliant, confirm they have policies and procedures in place to maintain confidentiality, access privileges, and provide security training for their vendors who might have access to your network and data.

5. Monitor vendor activity: Continuously monitor third-party vendor activity to ensure they comply with your security requirements and policies. Implement logging, notification, and auditing procedures to track vendor access and activities. If there is any suspicious activity, investigate and take appropriate action immediately.

6. Foster a culture of cybersecurity: A culture of cybersecurity and awareness throughout your organization and among third-party vendors ensures everyone is on the same page and with the same threat prevention mindset. Provide security awareness training to employees and vendors and encourage them to report any security incidents or concerns.

7. Enforce policies, systems, and procedures: Ensure that the security policies and practices are enforced and that vendors are held accountable for any breaches or violations. You can use contracts and service level agreements (SLAs) to establish vendor accountability.

8. Review and update regularly: Regularly review and update your security policies and practices to reflect any changes in your organization’s security posture or any new threats that may arise.

Vendor security management should be a priority for any business that relies on outside parties to handle and manage its vital business data and networks. A third-party data risk management strategy is essential to maintaining customer trust, so you never have to deliver the dreaded news of a breach. However, it requires a comprehensive approach to security that involves identifying risks, establishing policies, monitoring activities, and enforcing compliance. By following these steps, you can protect your organization from third-party data risks and ensure you meet the evolving threat landscape.