According to one 2021 report by the Ponemon Institute, 74 percent of organizations say they had experienced a cybersecurity breach in the previous 12 months because they gave “too much privileged access” to third parties.

Despite this worrying trend, 54 percent of companies also say they don’t assess the security practices of third parties before allowing access to sensitive or confidential data. Another 63 percent are in the dark about which third party has access to their networks, and what kind of permissions those parties have.

All these gaps leave organizations with large third-party networks vulnerable to all sorts of cyberattacks and security incidents. Your organization may be one of the 60 percent of companies that work with more than 1,000 third parties. These entities introduce significant cyber risk into your organization.

Are you aware of these enterprise risks? More importantly, are you prepared for them? This guide will pull back the curtain on third-party cyber risk and why you need a third-party cyber risk management program.

What Is Third-party Cyber Risk?

According to McKinsey, enterprise IT environments and third-party capabilities “are interpenetrated and indistinguishable.” Simply put, third parties and expanding supply chains provide more footholds for cyber attackers to reach your organization.

For clever attackers, your supplier ecosystem is an attractive vector to exploit; a successful breach of even one third party gives the attacker a path to reach many organizations (that vendor’s customers) in one shot. Such “supply chain attacks” have become increasingly common in recent years, as evidenced by events like SolarWinds, Kaseya, and Codecov.

Software-based supply chain attacks are on a particular upswing. Between 2020 and 2021, these supply chain attacks tripled, which prompted the May 2021 executive order from the Biden Administration to name such attacks as a key area of concern. Moreover, supply chain attacks are expected to contribute to cyber criminal activity throughout 2022 and beyond.

Other factors can also increase your organization’s third-party cyber risk. These include expanding supply chains, the adoption of cloud computing, the shift to remote work, and the increasing number of third-party vulnerabilities that threat actors can (and do) exploit. To protect your organization, you need third-party cyber risk management.

The Need for Third-party Cyber Risk Management

Per the Ponemon study, two-thirds of organizations said that the number of cybersecurity incidents involving third parties such as vendors is increasing. And yet, only 46 percent of that same group prioritize the management of outsourced relationship risks. If your company is similar to these firms, the disparity increases your risk of costly cyberattacks and data breaches, especially if:

  • Third-party data and IT environments are insufficiently secure;
  • Vendors use low-security methods to access your systems or data;
  • Vendors don’t encrypt your sensitive data and send it via unencrypted services like email.

These security gaps can compromise your networks, systems, applications, data, and even users. They may disrupt your day-to-day operations and affect your business continuity and sustainability. If a breach happens, you may lose business-critical data. That could damage your reputation, increase customer churn, harm your revenues, and ultimately prevent you from achieving your strategic goals.

Finally, third-party security weaknesses could endanger your ability to meet compliance objectives – which can be a huge problem if you are required to comply with laws and regulations such as GDPR, HIPAA, PCI-DSS, or SOC2 to continue operating in your industry.

What Is Third-party Cyber Risk Management?

To minimize third-party cyber risk and its potential fallout, you need better visibility into third-party risks. This means you need to understand both the vendor and cyber threat environment by answering questions like:

  • Who are our vendors?
  • Which of our systems and data do they touch?
  • How are they protecting our data?
  • Who are the attackers who may compromise vendors’ – and our – systems?
  • How are they most likely to attack?

You also need a process to vet every third party’s security and data privacy controls, and evaluate them against the third-party risk management regulations applicable to your organization.

Here’s where third-party cyber risk management (TPCRM) comes in.

TPCRM is an organized way of analyzing, monitoring, managing, and mitigating the various cyber risks associated with your third-party network. With TPCRM, you can also:

  • Assess and track the state of third parties’ cybersecurity and resilience;
  • Automation of vendor security assessments and third-party due diligence to reach more vendors faster and quickly identify control and compliance gaps;
  • Determine whether third parties are protecting your confidential and sensitive information;
  • Develop security ratings and scorecards and based on each vendor’s threat or risk level;
  • Take informed risk-driven decisions to protect the organization and gain more confidence in vendor partnerships.

Robust TPCRM solutions such as Reciprocity ROAR will provide real-time cyber risk monitoring. The right platform will provide actionable insights to help you prioritize third-party risks and create an effective vendor risk management policy. It will also improve your ability to on-board and manage third-party suppliers and optimize third-party relationships.

Should You Use Third-party Cyber Risk Management Services?

You can protect your third-party ecosystem from cyberattacks by implementing strong security controls in-house. The other option is to contract with an external TPCRM service provider.

An experienced provider can provide clear oversight of the third-party cyber risks affecting your business. The provider can actively identify, prioritize, and remediate these risks posed by your suppliers, partners, and other supply chain relationships. It can also manage your critical information systems that third parties access or use, while creating a buffer between at-risk assets and cybercriminals.

The provider’s specialists will examine and assess third-party cyber risk from every angle. They will also identify the third parties that can create long-term value for your business. Their solutions can also enable you to manage your entire third-party ecosystem across every relationship lifecycle.

If you lack a robust in-house third-party risk management program, an external service provider can help you:

  • Stay on top of third-party risk with continuous monitoring, threat monitoring, and alert management;
  • Streamline the TPCRM or TPRM program with advanced analytics, automated workflows, and machine learning;
  • Design risk frameworks and carry out vendor risk assessments and vendor due diligence.

Outsourcing TPCRM does involve additional costs. The provider’s reach and knowledge, however, can enable better risk decision-making and protect your organization from third-party risks. A good provider can strengthen your cyber defenses and set up response plans in the event of a breach. All these benefits could outweigh the costs, so you might want to consider outsourcing your TPCRM program to an external provider.

The Importance of Due Diligence and Vendor Screening in Third-party Risk Assessment

McKinsey suggests that organizations, led by their CIOs and CISOs, should form alliances with their third parties to minimize third-party cyber risk. So, to meet your risk mitigation requirements, your company should work with vendors, suppliers, and other third parties to sustain a united security front.

This doesn’t mean blindly trusting every third party or expecting that their security goals are aligned with yours. If anything, you should invest more time and resources in conducting third-party risks assessments. Third-party due diligence is a crucial element of such assessments.

Due diligence means verifying every vendor’s cybersecurity protocols and procedures. To help with such assessments, send due diligence questionnaires that include questions like:

  • How do they identify an incident? Do they have an incident detection and response plan?
  • How do they notify their customers (read: you) of security breaches?
  • How do they follow-up after such incidents?
  • Do they conduct penetration testing to find weaknesses in internal and external networks?
  • How often and how quickly do they remediate any discovered issues?
  • What data protection controls do they have in place?
  • Do they conduct regular security testing? How often? Is the testing done in-house or by an impartial third party?
  • Do they have a business continuity and disaster recovery plan?

You can – and should – include questions about third parties’ information security management, network management, and regulatory compliance.

Due diligence questionnaires are important to identify risks when onboarding and screening new vendors. They’re also useful for assessing established partnerships and monitoring the security posture of existing vendors.

As your third-party ecosystem grows, due diligence questionnaires and vendor screening will all play a part in how you manage vendor risk and leverage third-party relationships to meet your business objectives.

Streamline Continuous Monitoring of Cyber Risks With Reciprocity ROAR Platform

Is your vendor ecosystem expanding? If yes, do you have visibility into the cyber risks these third parties bring into your organization? If you don’t, you are constantly at risk of an attack or breach that can harm your operations, business continuity, and stakeholder relationships.

The Reciprocity ROAR platform can help you see, understand, and act on your third-party cyber risks. With real-time views of risk and contextual insights, you can understand the risk implications of business processes where third parties are involved.

ROAR comes with a built-in content library of statutory frameworks, plus pre-built integrations, in-application risk management guidance, and a single source of truth for more robust third-party risk management.

Get a unified view of risk, automate remediation workflows, and make smart decisions to mitigate risk and optimize third-party relationships. With ROAR, you can do all this and more.

To know how ROAR can strengthen your third-party cybersecurity risk management program, schedule a demo.