The Critical Importance of Assessing Third-Party Vendor Cyber Risk
Cybersecurity risks associated with third-party vendors
Businesses rely heavily on third-party vendors for various services and solutions. These vendors may include software providers, IT service providers, marketing agencies, etc. While third-party vendors can bring immense value to a business, they pose significant risks, especially in cybersecurity. Therefore, a cyber risk assessment of third-party vendors is crucial to ensure a company can manage these risks effectively.
Third-party vendors are one of the most significant cybersecurity threats to businesses. According to a report by Ponemon Institute, 59% of companies reported that they had experienced a data breach caused by a third-party vendor. Moreover, 22% of companies experienced a breach involving more than 1,000 records, and 9% experienced a breach affecting more than 10,000 records.
These statistics highlight the importance of assessing third-party vendor cyber risk. Companies that do not adequately assess their vendors' cybersecurity risk expose themselves to significant financial and reputational harm. A data breach can lead to regulatory penalties, loss of business, lawsuits, and damage to a business's reputation.
Risk assessment of third-party vendors
A cyber risk assessment of third-party vendors involves evaluating their cybersecurity practices, policies, and controls. This assessment aims to identify vulnerabilities that could be exploited by cybercriminals. It also helps businesses identify areas where their vendors may be lacking in cybersecurity, enabling them to provide support and guidance to their vendors to improve their security posture.
The first step in conducting a cyber risk assessment of third-party vendors is to identify all vendors with access to the business's sensitive data. This may involve reviewing contracts and agreements, identifying all data flows, and conducting interviews with relevant stakeholders.
Once the vendors have been identified, the next step is to assess their cybersecurity risk. This involves evaluating their cybersecurity controls, policies, and practices. The assessment may include reviewing security policies, conducting vulnerability scans, and penetration testing. The assessment results should be used to identify areas where the vendor's cybersecurity practices can be improved.
There are several resources available that businesses can use to assess third-party vendor cyber risk. The National Institute of Standards and Technology (NIST) provides a Cybersecurity Framework that companies can use to evaluate their vendor's cybersecurity risk. The framework includes guidelines for identifying, assessing, and managing cybersecurity risk. The NIST framework is widely used by businesses and provides a comprehensive approach to cybersecurity risk assessment.
Another resource that businesses can use to assess third-party vendor cyber risk is the Cloud Security Alliance (CSA) Security Trust Assurance and Risk (STAR) program. The CSA STAR program provides a framework for assessing cloud providers' security posture. It includes a self-assessment questionnaire that vendors can complete to evaluate their cybersecurity risk.
SOC 2 and ISO 27001 are two widely recognized cybersecurity standards that businesses can use to evaluate the cybersecurity risk of their third-party vendors. These standards provide a framework for assessing vendors' cybersecurity practices, policies, and controls.
SOC 2 (Service Organization Control 2) is an auditing standard developed by the American Institute of Certified Public Accountants (AICPA). SOC 2 focuses on the security, availability, processing integrity, confidentiality, and privacy of data processed by service providers. The SOC 2 audit assesses whether a service provider has appropriate controls to ensure the security, availability, and confidentiality of the data it processes.
When businesses engage third-party vendors, they often provide access to sensitive data. SOC 2 provides a framework for assessing whether these vendors have appropriate controls to protect this data's confidentiality, integrity, and availability. SOC 2 also provides a standard set of control objectives for businesses to evaluate their vendors' cybersecurity risk.
ISO 27001 is an international standard that provides a framework for information security management. It specifies requirements for establishing, implementing, maintaining, and continually improving an information security management system (ISMS). The ISMS is a systematic approach to managing sensitive company information so that it remains secure. ISO 27001 also provides a risk management framework that businesses can use to assess the cybersecurity risk of their vendors.
ISO 27001 requires businesses to identify and assess information security risks, implement appropriate controls to manage them, and continuously monitor and improve their cybersecurity practices. When companies engage third-party vendors, they can use ISO 27001 to assess whether these vendors have an effective ISMS in place to manage information security risks.
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Both SOC 2 and ISO 27001 provide a comprehensive framework for evaluating the cybersecurity risk of third-party vendors. These standards provide a set of control objectives and requirements that businesses can use to assess their vendors' cybersecurity practices. The audits conducted under these standards are performed by independent third-party auditors, which objectively assess vendors' cybersecurity practices.
In addition to providing a framework for assessing cybersecurity risk, SOC 2 and ISO 27001 offer a competitive advantage for vendors that have completed these audits. Businesses that engage vendors that have completed SOC 2 or ISO 27001 audits can have confidence that these vendors have appropriate controls in place to protect their data.
Direct work with the vendor
In addition to using external resources, businesses can also engage with their vendors to assess their cybersecurity risk. This may involve interviewing relevant stakeholders, reviewing security policies and procedures, and conducting vulnerability scans and penetration testing.
Conducting a cyber risk assessment of third-party vendors is crucial to ensuring a business can effectively manage its cybersecurity risk.
It is essential to note that cybercriminals are becoming more sophisticated in their attacks. They are now targeting more than just large organizations but also small and medium-sized businesses that may have fewer resources to defend against cyber threats. This makes it even more critical for companies to assess the cybersecurity risk of their third-party vendors.
Businesses that fail to assess their vendors' cybersecurity risk face significant financial and reputational harm. For example, the Target data breach in 2013 was caused by a third-party vendor accessing Target's payment systems. The breach resulted in the theft of over 40 million credit and debit card numbers, costing Target $18.5 million in settlement fees alone.
A recent survey conducted by the Ponemon Institute found that the average cost of a data breach caused by a third-party vendor is $4.27 million. This cost includes legal fees, regulatory penalties, and loss of business. The survey also found that companies with a comprehensive third-party risk management program reduced the cost of a data breach by an average of $370,000.
Conducting a cyber risk assessment of third-party vendors is not a one-time exercise but rather an ongoing process. Vendors' cybersecurity risk can change over time, and businesses need to be vigilant and continually monitor their vendors' cybersecurity practices.
In addition to assessing their vendors' cybersecurity risk, businesses should have clear policies and procedures to manage third-party vendor risk. These policies should include guidelines for selecting, onboarding, and monitoring vendors' cybersecurity risks. They should also specify the steps to take if a vendor's cybersecurity risk is unacceptable.
It is also essential to note that cybersecurity risk is not just an IT issue but a business issue. Business leaders need to understand the risks associated with third-party vendors and be involved in assessing and managing these risks. They should also ensure that adequate resources are allocated to cybersecurity risk management and that cybersecurity risk management is integrated into their overall risk management framework.
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1yWow it’s packed in here thank you
Governance, Risk, Compliance (GRC) Executive, Building IPO-Proof GRC
1yI love it that there was no mention of security questionnaires as part of vendor risk assessments! Audits, pen-tests, interviews, reviewing their security audit reports are all much better ways to assess vendor’s security posture. And hopefully soon, GRC automation tools that can show us a close to live view of how a vendor is performing by monitoring their internal controls and evidence collection…
Chief Revenue Officer
1yTotally agree!!! These issues should be highlighted and discussed at CISO EXECUTIVE FORUM LONDON, WWW.WSADVISORYGROUP.VIP
VP/Information Security Architect at First Citizens Bank
1yEvaluating directly connected partners and vendors are enough work, but I also worry about fourth party and beyond that has access to the third party. The best way I know to mitigate this is to add clauses into the contract to essentially "flow down" the same controls to third-party connected companies. If I were to look at all the dependent services my vendor or partner uses, I wouldn't have time to do anything else.