BLOG: Assessing the Impact of Third-Party Risks on Your Organization

In the current interconnected business landscape, numerous organizations depend on third-party vendors and suppliers to offer products and services. While these relationships can bring numerous benefits, they also pose a significant risk to organizations. If a third-party vendor or supplier experiences a security breach or suffers financial difficulties, it can have severe consequences for the organization that relies on them.

Assessing the impact of third-party risks on your organization is an essential part of managing these risks effectively. According to Gartner, enterprise risk management (ERM) teams are struggling to effectively manage third-party risk in today’s interconnected business environment. A survey by Gartner found that 84% of executive risk committee members reported third-party risk “misses” resulting in operations disruptions. The use of third parties for new-in-kind services has increased, and organizations have become more reliant on them for conducting operations, which has introduced more risks. To manage third-party risk effectively, ERM teams must adopt an approach called “enterprise third-party risk management,” which involves isolating and combining only the most critical inputs, enabling cross-functional alignment, and monitoring forward-looking indicators to reliably spot critical enterprise risk trends.

On February 9^th 2023, The Bank of England (BoE) released a Policy Statement on outsourcing and third-party risk management for financial market infrastructures (FMIs). The statement provided feedback to three previous consultation papers and sets out the BoE’s requirements and expectations for outsourcing and third-party risk management for FMIs, including Central Counterparties (CCPs), Central Securities Depositories (CSDs), Recognised Payment System Operators (RPSOs), and Specified Service Providers (SSPs).

The expectations and requirements are intended to align with and complement the regulatory framework on operational resilience for FMIs published in March 2021 and supervisory expectations set out in the BoE’s letters to FMIs in September 2021. The Policy Statement provides links to supervisory statements and a Code of Practice that explains how FMIs can comply with the range of requirements and expectations on outsourcing and third-party risk management throughout the lifecycle of their outsourcing arrangements.

Identify Your Third-Party Vendors and Suppliers

The first step in assessing the impact of third-party risks on your organization is to identify all of the vendors and suppliers you work with. This includes anyone who provides goods or services to your organization, whether it’s a single individual or a large multinational corporation.

Assess Each Vendor or Supplier’s Risk Profile

Once you have identified all of your third-party vendors and suppliers, the next step is to assess each one’s risk profile. This involves gathering information about the vendor’s financial stability, security posture, and overall business practices.

Some questions you should ask when assessing each vendor’s risk profile include:

• What is the vendor’s financial stability? Do they have any outstanding debts or legal disputes that could impact their ability to provide goods or services to your organization?
• What security measures does the vendor have in place to protect your organization’s data and assets?
• What is the vendor’s history of data breaches or security incidents?
• What are the vendor’s overall business practices? Do they have a good reputation in the industry, or have there been any significant issues with their performance or service quality in the past?

Prioritise Your third-party Risks

Not all third-party risks are created equal, and some will have a more significant impact on your organization than others. Once you have assessed each vendor’s risk profile, the next step is to prioritize these risks based on their potential impact on your organization.

For example, a vendor that handles sensitive customer data will have a higher priority than a vendor that provides office supplies. Similarly, a vendor with a history of security breaches will have a higher priority than a vendor with a clean track record.

Mitigate the Risks

Once you have identified and prioritized your third-party risks, the final step is to take action to mitigate these risks. This may involve negotiating better contract terms with vendors, requiring them to comply with specific security standards or protocols, or even terminating relationships with high-risk vendors altogether.

Other steps you can take to mitigate third-party risks include:

• Regularly reviewing your contracts with vendors to ensure they are still meeting your organization’s needs and standards.
• Conducting regular security assessments of your vendors to ensure they are complying with security protocols and industry best practices.
• Monitoring the financial stability of your vendors to ensure they are not experiencing any financial difficulties that could impact their ability to provide goods or services to your organization.
• Establishing a comprehensive vendor management program that includes clear policies and procedures for assessing, monitoring, and mitigating third-party risks.

Assessing Third-Party Risks with Cyber Risk Ratings

Assessing third-party risks with cyber risk ratings involves evaluating each vendor or supplier’s cybersecurity posture using a variety of factors. These factors include:

1. Security protocols: Cyber risk ratings consider the security protocols that vendors and suppliers have in place to protect their systems and data. This includes evaluating factors such as encryption, access controls, and patch management.
2. Compliance: Cyber risk ratings assess whether vendors and suppliers comply with industry standards and regulations. This includes evaluating factors such as GDPR, HIPAA, and PCI-DSS compliance.
3. Past security incidents: Cyber risk ratings consider the vendor or supplier’s past security incidents, including data breaches and cyberattacks.
4. Cybersecurity practices: Cyber risk ratings evaluate the vendor or supplier’s overall cybersecurity practices, including their training and awareness programs, incident response plans, and disaster recovery capabilities.

Using Cyber Risk Ratings to Prioritize Third-Party Risks

Not all third-party risks are created equal, and some will have a more significant impact on your organization than others. Once you have assessed each vendor or supplier’s cybersecurity posture using cyber risk ratings, the next step is to prioritize these risks based on their potential impact on your organization.

For example, a vendor that handles sensitive customer data will have a higher priority than a vendor that provides office supplies. Similarly, a vendor with a history of security breaches will have a higher priority than a vendor with a clean track record.

Mitigating Third-Party Risks with Cyber Risk Ratings

Once you have identified and prioritized your third-party risks using cyber risk ratings, the final step is to take action to mitigate these risks. This may involve negotiating better contract terms with vendors, requiring them to comply with specific security standards or protocols, or even terminating relationships with high-risk vendors altogether.

Using cyber risk ratings to assess your third-party vendors and suppliers can help you mitigate these risks more effectively. By evaluating vendors and suppliers’ cybersecurity posture before entering into a business relationship with them, you can make informed decisions about which vendors to work with and how to manage the risks associated with those relationships.

How Can Orpheus Cyber Help?

Managing third-party risks is essential to protect your organization from security breaches and financial losses. At Orpheus Cyber, we can help you assess the attack surface of your third parties and provide you with a precise cyber risk rating. Our approach involves continuous monitoring of your third parties and highlighting the critical vulnerabilities, which are linked to our intelligence reports and Orpheus’ CVE scoring. This enables you to collaborate with your third parties to improve their security and reduce the risk to your organization.

Our platform is designed to be user-friendly and quick to set up, requiring no input from third parties. It provides detailed information behind the scores, giving you better insights to reduce risk effectively. Find out more here