The Importance of Third-Party Risk Management for Cybersecurity

In the last few decades, cybersecurity has become more and more mainstream for companies of all sizes. A large part of the reason for this rise is the increased frequency of third-party breaches. 

Many companies, especially larger multinational corporations, hire cybersecurity firms to protect their own servers and data. This has effectively mitigated many instances of cyber-attacks against large conglomerates. However, these same companies often use a wide range of vendors, programs, and services they do not build themselves. Unfortunately, many of these “third-party” services lack proper security against cyber attacks. 

Many of the latest and largest data breaches of the last few years are a result of so-called “third party attacks,” whereby hackers use improperly secured third-party services to steal sensitive data and information from large companies. 

Third-party risk is one of if not the single most overlooked and yet important aspects of cybersecurity. Third-party risk can have potentially devastating consequences on both a company’s operation and public opinion. As time goes on, third-party risk management is becoming a requisite part of conducting business transactions. Proper third-party risk management, also known as TPRM, requires taking steps like assessing cybersecurity before onboarding and hiring a company that can use the latest technology to assess and defeat third-party risk.

What is Third-Party Risk?

Third-party risk refers to the potential risk for the loss of sensitive data and information from an organization’s outside vendors and supply chain managers. Many large companies find the need to rely on so-called “third party” entities for much of their business operation. In some cases, this is as simple as using an outside server to store cloud data. Other companies need third-party vendors to help keep their supply chain in check or handle complicated data management.

There is a huge potential risk to these third-party entities for two reasons. First, third-party vendors and supply chain managers usually have access to sensitive company information and data. This is purely out of necessity — many companies need help storing and using their sensitive data from these third parties. Even if the third parties themselves do not contain sensitive information, they almost always have access to servers and programs that house a corporation’s sensitive data. The fact that these third-party vendors have access to sensitive information is a risk in and of itself because it gives hackers another potential in-route to sensitive information.

The second reason that third-party entities pose a huge cybersecurity risk is that they often lack the level of security that their parent company has. The fact that third parties have access to potentially sensitive data is a risk in and of itself, one that is compounded by the fact that these third parties often lack proper security.

Too often, large corporations overlook the cybersecurity potential of their third-party affiliates. In the last few years, third-party cyber attacks have become by far the most common and devastating form of cyber attack. In third-party attacks, hackers can infiltrate an improperly secured third party to easily access sensitive company information and data.

A classic example of a third-party cyber attack is the Accellion breach of 2021. Companies like the Reserve bank of New Zealand, Kroger, the entire state of Washington, and more used Accellion’s File Transfer Appliance as a third-party entity to move sensitive files over a supposedly secure network. This breach exposed the social security numbers and banking information of millions of people. The issue was not with the security of companies like Kroger but with the third parties they trusted with sensitive information.

The Key Dangers of Third-Party Risk

Obviously, third-party risks that prompt cyberattacks and steal data from customers and companies pose a massive risk to large corporations who thought their cybersecurity was in top shape. Third-party risk poses two potential dangers: the more obvious risk of sensitive data being stolen and the more subtle reputational risk.

At a basic level, the danger of third-party cyber attacks is that they have the potential to expose the sensitive data of millions of customers and employees to anyone who is willing to pay for them. Because third-party entities are often used for things like sensitive file transfers and password management/storage, they pose as potential gold mines for would-be data thieves. But, when it comes to third-party risk, lost information is only the tip of the iceberg.

Third-party risk carries a huge weight of reputational risk for companies. Usually, cyber-attacks that result from shoddy third-party cybersecurity are not really the fault of the large corporation that unwittingly trusted a poor third party. Most often, these large companies had no idea that their third-party vendors were vulnerable to some sort of attack.

However, in the court of public opinion, the entire blame lies with the large corporation that used the third party. In other words, when a third-party cyber attack occurs, the public rarely blames the third party. This is known as Reputational Risk, and it has the potential to seriously damage a company’s image in the eyes of the public.

It sounds like every company’s worst nightmare: a service that many didn’t even know they were using is hacked, and suddenly public opinion is turned against the company. Going back to the Accellion case, organizations like the Reserve Bank of New Zealand can attempt to put the blame on a third-party company all they want. But, in the eyes of the public, it is the Reserve bank’s fault that their sensitive information has been compromised.

How Third-Party Risk Impacts the Changing Business Landscape

Because of the massive dangers in both sensitive data breaches and reputational risk, third-party risk assessment is increasingly becoming an integral part of business transactions and engagements.

In fact, one of Gartner’s top cybersecurity predictions for the future market suggests that by 2025, up to 60% of organizations will use cybersecurity risks as one of the main determinants of whether or not they want to do business with a third party.

As the prevalence and scope of third-party risk increases, companies are becoming warier of unknowingly signing on with a dangerous third party. Currently, as per Gartner, only around 23% of security and risk leaders are properly monitoring third-party risk. This implies that there is still a massive open playing field for hackers to take on third-party companies.

In the future, cybersecurity will undoubtedly become more integral to doing everyday business. As part of this, risk assessments and other checklists will need to be completed before any contracts with third-party contracts are signed.

How to Mitigate Third-Party Risk

Luckily, there are a number of steps that any company can take to limit the third-party risk that they face. These include properly assessing third parties before onboarding, limiting access to sensitive data, and continuously monitoring third parties for potential risk.

#1 Properly Assess Third Parties Before Signing with Them

This is perhaps the most crucial yet overlooked step in mitigating third-party risk. One potential way to measure the safety of third parties is to use security ratings. These can save lots of time in onboarding companies. In the past, corporations used long risk assessments, like penetration tests, to discover if a third party was vulnerable. With security ratings, companies can get an instant idea of the potential for a security breach in their potential partners. 

Regardless of how this due diligence is carried out, it is a necessary step in ensuring that companies are able to keep their data safe even when it is in the hands of third parties.

#2 Limiting Access to Unnecessary Information

Putting third-party entities and even employees on a more “need to know” basis when it comes to accessing sensitive information is one surefire way to help mitigate third-party risk. Although it may initially sound harsh, too many companies are lackadaisical with giving third parties access to way too much sensitive data. No vendor needs to have access to all of a company’s sensitive data. Limiting this access means that even if a breach of a third party occurs, the amount of compromised information is greatly lessened.

The same can be said for employees – companies need to ensure that employees are properly briefed and trained on who to share information with, when to share it, and what exactly to share. This is especially true in the case of third-party sharing

#3 Keep on Monitoring Vendors After Onboarding

Just because a third-party company passed the initial cybersecurity check does not mean that, over time, its security posture will not change. Too many organizations either only check on a third party’s security during onboarding or periodically check it without any constant monitoring. Many third parties will beef up their security in the face of a potential new contract, only to let it fall by the wayside once they feel safe handling a corporation’s data.

At the end of the day, it is necessary to constantly check (and adjust, if need be) the cybersecurity of any and all third parties.

How Wisr Can Help

Wisr is a leading company when it comes to predicting, assessing, and managing third-party risk for companies of all sizes. Wisr uses state-of-the-art AI technology to mitigate third-party risk. Wisr utilizes prioritized vendor risk to constantly monitor breaches and hacks to provide companies with assessments to help prioritize threat management. In addition, Wisr’s AI Risk profiling uses a neural network platform to provide early warnings for potential vendor breaches.

Third-party risk is a very serious issue when it comes to cybersecurity and one that too many corporations overlook and then end up suffering the consequences. To learn more about how Wisr can help companies stay safe from third-party risk, reach out to our team of experts today.

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