Third Party Digital Risk Management
How to deal with your critical third parties in a digital environment?
Organizations frequently outsource key activities to specialized Third Party Service Providers. Due to increased use of technology and digitized interconnectedness, third parties often have access to critical and confidential data assets of your organization such as; financial transactions, medical records, customer and pricing information etc.
At the same time, organizations are exposed to increasing privacy regulations and numerous cyber security risks. Given this context, custo¬mers, auditors, regulators and other relevant stakeholders are becoming highly demanding to obtain assurance about the control measures put in place to protect confidential information and to ensure availability of systems.
When outsourcing services, you cannot outsource the related risks. But how to ensure third party service providers are sufficiently “in control” with regards to “digital risks”.
What is third-party digital risk?
Third party digital risk arises when third party service providers (e.g. IT providers, payroll agencies, accounting administrators… ) have unauthorized access to the systems and data of your company and/or when your confidential data is not managed and protected adequately by these third parties.
Some key risks that may occur are; data breaches, data loss, unavailability of your assets, alteration of data etc. Obviously, these events might have severe regulatory, reputational or financial consequences for your organization.
What can you do?
Third-party digital risks needs to be managed and monitored within an adequate framework to manage your third parties. A third-party risk management framework can help organizations to mitigate the risks that are related to your partnerships. We distinguish four core principles in order to cover the full third-party life-cycle: identification, management, assessment and control.
To meet digital security risks, ‘technology’ as such is not sufficient. Organizations also need to consider ‘people’ and ‘policies & procedures’. To fully cover the third-party life cycle, organizations could consider a number of general questions:
- Did you identify and listed all your current third-party relationships?
- Do you conduct initial and periodic risk assessments of your third parties?
- Do you have an adequate risk assessment methodology?
- Do you continuously monitor your third parties and the relevant risks?
- Do you request your third parties to meet a number of ‘minimum control measures’, in line with their risk profile?
- Did you agree with your third parties on some minimum standards with regards to management reporting, in line with their risk profile?
- Are you entitled to audit your third parties (at least annually)?
- Procedures are available to identify, assess and report on third party (digital security) risks?
- Sufficient resources (people and technology) are allocated in order to properly manage your third parties, in line with their risk profile?
- Roles and responsibilities are clearly and in sufficient detail described in the service agreement with your third party?
- Monitoring of your third parties is performed in an independent way?
- Do you periodically review your procedures and do you obtain feedback from your third parties to continuously improve your third party risk management?
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