Third-Party Cyber Risk Assessment: Best Practises in 2024

Do you know that the cost of cybercrime worldwide is around 5.7 trillion dollars? This cost is expected to increase to 13.82 trillion dollars by the end of 2028. Most of these attacks are experienced by third-party vendors. Therefore, it is in your best interest to have a third-party cyber risk assessment done to know if your partners are complying with various data laws.

In today’s world, the digital landscape is interconnected. There are several reasons for this. One of them is that businesses in the Western world find it cheaper to subcontract third and fourth parties to store and process their data.

Third-party risks are risks that refer to vulnerabilities that are associated with using the services of external vendors. An example of such a service is cloud computing.

The best way to protect your business from being penalized is to use a third-party risk management plan. An example of a company that has been punished for violating cybersecurity laws is Sephora.

The objective of this article is to help businesses like yours understand the importance of third-party risk management, choosing compliant vendors, and knowing how to build strong cybersecurity relationships.

Key Takeaways

• Businesses need to vet their vendors to ensure they comply with cyber risk regulations
• A comprehensive cyber risk assessment framework will help you identify qualified vendors
• It is in your best interest to train and regularly audit vendors for compliance

Understanding Third-Party Cyber Risks

Third-party cyber risks are threats or vulnerabilities that affect your business because of interactions with external vendors.

The scope of third-party risks is broad and can include several threats, such as:

• Data breaches: A data breach is an event that exposes sensitive data, such as credit card information, to unauthorized personnel. Several factors can cause data breaches, the most common being a malicious insider, having a stolen device, or phishing.
• Malware infections: Malware is malicious software created to steal or delete sensitive data. Malware comes in several forms, including a virus, trojan horse or spyware.
• DoS attacks: This attack targets high-profile web servers by flooding the server with excess traffic that causes it to crash. The main aim of a DoS attack is to disrupt business operations.

The Evolving Cyber Threat Landscape

The cyber threat landscape keeps evolving thanks to the emergence of new technologies that make it easier for hackers to infiltrate. According to the Threat Intelligence Report, hackers made 11.5 attacks per minute. The most targeted institutions are the financial, healthcare, and small businesses.

As technology changes, so do the strategies hackers use to steal customer data. One of these is the use of Ransomware and Malware.

Another strategy currently being used is phishing and social engineering. This is a deceptive technique used by hackers to manipulate vendors and third-party suppliers.

Lately, various institutions have been experiencing Advanced Persistent Threats {APTs}. This is a long-term threat that an intruder makes to infiltrate the system undetected and mine data for a long time.

The Impact of Third-Party Cyber Incidents on Your Business

Vendors should not have any third-party breaches because the impact on your business can be severe. A case in point is Home Depot. The company was fined more than $17.5 million for a data breach that happened in 2014 when hackers used the vendor’s password and username to access Depot’s network.

Other impacts of third-party cyber threats include:

• Reputational damage
• Financial losses
• Business disruption

Preparing for Third-Party Cyber Risk Assessment

A comprehensive third-party risk management plan can only be successful after there has been an assessment of all the vendors you partner with. A good assessment plan must have the scope, objectives, and a skilled assessment team.

When creating the scope, you must outline the boundaries and areas that will be assessed. You must also identify third-party relationships {vendors} and define your relationship regarding data management and information processing.

A good party risk management program must have clear objectives. An example of an objective is to identify potential risks that can expose your business to Cyber attacks. Other goals can include:

• Ensuring compliance with various laws such as GDPR and CCPA
• Ensuring compliance with contractual obligations
• Ensuring security protocols are followed and observed.

A competent team must be in charge of the program. The team must have expertise in cyber security, compliance, legal, vendor risk management, and risk assessment. This is because you want to get a holistic understanding of how third parties operate.

The last step for preparing for a cyber risk assessment is identifying critical data and systems connected with your vendors. Several strategies are used to identify connected data. These strategies are:

Reviewing third-party contracts: This approach will enable the business to know which data it shares with third parties and how it is processed.

Data Mapping: Mapping will help you identify shared data and sensitive information that may cause non-compliance.

Another strategy can be to interview business representatives to have a holistic approach to the type of information used.

Vendor Selection and Cybersecurity Due Diligence

Select a vendor with cybersecurity in mind. A lousy vendor will expose the business to cyberattacks, reputational damage, and hefty penalties. So, what should you consider when selecting the right vendor for your business?

• Security certifications: Certifications to consider include ISO 27001 and SOC 2. SOC 2 proves that a vendor has implemented the required security controls that protect consumer data. ISO 27001 shows that a vendor has an operational Information Security System.
• Data Protection Measures: Though the protection measures will depend on the industry, vendors must implement basic data protection measures such as encryption, audit logging, and the use of access controls.
• Third-party risk management: Businesses should consider whether the vendor has a risk management protocol, such as having a third-party risk management policy.

Lastly, ensure the vendor has well-documented incident response plans that include detailed operational procedures, roles, and responsibilities.

After settling on a preferred vendor, conduct thorough due diligence to ensure they are the right partners. The best way to do this is to visit the site for a physical inspection.

The risk assessment team can go a step further and have an external audit done to know whether the vendor possesses relevant certifications.

Lastly, the risk management team should document the vendor's qualifications and history. The records should include contracts, audit assessment reports, and any historical incidents and reports.

Developing a Comprehensive Cyber Risk Assessment Framework

A cyber Risk Assessment Framework is a structured plan used to systematically measure, evaluate, and determine third-party risk. Cyber risk assessment frameworks will vary depending on the industry, as each industry has different standards.

Examples of widely used cyber risk assessment frameworks include ISO 27001 and Factor Analysis of Information Risk {FAIR}.

When developing a comprehensive cyber risk assessment plan, identify critical cyber risk factors like data security. Data security involves safeguarding sensitive information from theft and unwanted access.

Another critical factor is breach history. The assessment must determine how often breaches occur and what actions must be taken to prevent future violations.

The assessment team must also ensure that the vendor processes comply with legal and cybersecurity regulations on data protection.

After critical cyber risk factors have been identified, a risk assessment questionnaire and criteria should be created. The criteria will act as a benchmark of how a vendor's response will be evaluated.

The best strategy to do this is through a scoring system based on how satisfying the answers in the questionnaire are.

The questionnaire should cover various aspects of cybersecurity and align with the identified risk factors, such as data breaches and Compliance. We advise that the questionnaire include both quantitative and qualitative metrics.

Different vendors have different cybersecurity requirements. Therefore, the assessment framework must be scalable and customized to meet these needs.

To customize the assessment framework, consider the industry and technological capabilities of the vendor.

The Third-Party Cyber Risk Assessment Process

The risk assessment process involves several steps. One is establishing clear lines of communication and collecting relevant cybersecurity documentation.

After establishing clear lines of communication, discuss your cybersecurity expectations, concerns, and requirements. The assessment team should clearly articulate the preferred cyber security protocols and best practices. The protocols should include factors such as how incident reporting and response are done.

During the process, vendors must provide relevant cyber security documentation such as audit reports, compliance certifications, and third-party assessments. Review the documentation and ensure it meets the needs of the business.

After reviewing the documentation, conduct a cyber vulnerability test to identify security flaws and weaknesses.

Lastly, analyze the data collected to identify weaknesses and make recommendations to the vendor.

Risk Mitigation and Remediation

After the assessment, the vendor must develop a risk mitigation and remediation plan. A comprehensive risk mitigation plan includes:

• Risk prioritization: Prioritize risks in order of urgency, focusing on the most impactful.
• Actionable strategies: Create an actionable plan based on the identified risk. Resource allocation: The plan must include procedures for how resources such as technical and financial will be used to mitigate the risks.

A good remediation strategy must include clear timelines broken down into milestones. Use tracking technologies to ensure the milestones are not missed.

After making recommendations, engage the vendor to monitor improvements in their security system. Monitoring should involve regular progress checks, follow-up assessments, and tests to verify that risks have been reduced.

Incorporating Cybersecurity into Vendor Contracts

Vendor contracts must incorporate cybersecurity clauses to ensure that third-party risks are minimized. Existing contract clauses need to be enhanced to define security standards and protocols that meet the needs of the business.

Critical cyber security clauses that should be included in the contract include incident notification and audit rights. Incident notification outlines the time frame and reporting procedures a vendor should follow in case of a data breach.

Auditor rights allow the business to audit the vendor to identify security measures that could impact its business.

The contract should also have specific responsibilities that vendors should follow to ensure data safety. An example of such responsibility includes using access controls, encryption and cyber protection software such as Kaspersky.

The contractual agreements should align with the risk assessment findings. The contractual clauses should incorporate identified weaknesses, vulnerabilities, and improvements that need to be done.

Another way to align the contract with the risk assessment findings is to ensure it addresses prioritized risks.

The contract must have a non-compliance termination clause. The termination clauses must include:

Grace period: This time frame is given to the vendor to rectify non-compliance issues.

Transition and continuity plans: This clause gives a business enough time to transition to another vendor in case of termination.

Continuous Monitoring and Ongoing Cyber Risk Assessments

The best way to maintain a proactive and adaptable approach to cybersecurity is to implement a continuous cybersecurity monitoring assessment. The assessment should include continued implementation, regular reassessing, and adaptability to emerging threats.

Implementing a continuous monitoring mechanism requires automated security tools for real-time monitoring and threat detection. Other systems that can be used for continuous monitoring are:

• Endpoint detections and response solutions: Monitor threats on individual devices
• Security information and event management solution: Collects and analyzes data in real-time

Continuous monitoring should also involve regularly reassessing the cybersecurity preparedness of the vendor. Your team should have a scheduled reassessment plan and develop a collaborative approach that involves discussions with the vendor team on improving their cybersecurity capabilities.

Reporting and Communication

A good cyber security management plan must involve regular reporting and communication using a cyber risk assessment report. The report should be a detailed summary of all cyber threat findings and recommended actions to mitigate these threats.

The assessment team should prioritize critical risks and vulnerabilities in chronological order to demonstrate the severity and potential impact of each risk. In addition, the report should end with actionable recommendations and a clear roadmap for remediation.

When presenting the report to key stakeholders, it is essential to customize it, focusing on relevant points such as the impact of the threats to the business.

When presenting the report to vendors, establish transparent communication by giving them detailed reports on the cybersecurity performance of their business. In addition, encourage transparent discussions on the need to ensure compliance.

Regulatory Compliance and Third-Party Cyber Risk

Risk assessment teams should ensure that the assessment aligns with regulatory requirements such as the GDPR and CCPA. After understanding the relevant regulations, integrate these laws into the assessment program.

For example, if it is HIPPA, ensure that sensitive patient health data is not shared with everybody in the hospital.

Compliance efforts must be documented, including reports such as assessments, procedures created, and remediation plans. The documentation must be securely stored, well-organized, and ready to audit.

When preparing for an audit, Identify regulatory requirements. This is important because each industry has its regulations concerning privacy and cybersecurity. After reviewing the regulations, establish a compliance program. The compliance program should include controls such as encryption, incident response procedures, and access controls.

You should also ensure proper documentation and record-keeping. Lastly, prepare for mock audits and drills to stimulate the audit process.

Building Strong Vendor Cybersecurity Relationships

To build a robust cybersecurity relationship, nurture trust, maintain collaboration, and encourage the adoption of cybersecurity best practices.

Businesses can nurture trust by having open and transparent communication about what is required of the vendor and business. If there is a knowledge gap, the business should educate the vendor on best cybersecurity practices.

For a long-term relationship, regularly engage with the vendor and conduct periodic assessments.

Encourage vendors to adopt best cybersecurity practices by sharing information about the industry. You can also offer education and training on how to identify threats.

Leveraging Technology and Tools for Cyber Risk Assessment

Several software and platforms can be used to conduct a more robust assessment. The tools are essential because they automate the data collection process. They also help in risk scoring and reporting.

Businesses should leverage data analytics and AI for more in-depth assessments. For example, Artificial intelligence can identify anomalies in real time, making it easier to detect and respond to threats.

To stay updated with the latest cybersecurity assessment technologies, collaborate with industry experts.

Learning from Real-World Risk Scenarios

One case study is a healthcare organization looking to improve its HIPAA compliance. The hospital adopted a new cyber risk assessment process that vetted HIPAA-compliant vendors.

Another case study is that of a large financial company that had been penalized because one of its vendors was faced with a cyber attack and sensitive data stolen. The bank used a combination of manual reviews and Artificial Intelligence to detect and report threats in real-time. Using AI for cybersecurity assessments, the bank was able to reduce attacks by more than 90%.

There are several mistakes that businesses should avoid when doing a risk assessment. These mistakes are:

• Not having a clear and well-defined scope of assessment
• Failing to conduct thorough due diligence
• Lack of regular communication with the vendor
• Having contracts that don’t align with cyber security requirements

Closing

In conclusion, though your business might comply with various regulations, this may be different with your vendor. For this reason, investigate the vendor to ensure their negligence does not cause reputational harm or financial penalties.

Risk assessments are only helpful if done correctly. It is for this reason you will need the help of Captain Compliance. We use cutting-edge technologies and invest in teams to conduct credible and reliable risk assessments.

Our risk assessment services ensure that your business has a cybersecurity framework that it can rely on. Get in touch with us for a free consultative session!

FAQS

What are the key elements to consider in a vendor cybersecurity assessment?

The key elements to consider in a cyber security assessment are incident response plans, data protection measures, and compliance with regulatory requirements.

What are some mistakes to avoid when conducting a risk assessment?

Mistakes to avoid when conducting a risk assessment include not using a risk-based approach and modern tools and techniques.

What is Cyber security?

Cyber security is a field in computer science that protects computers, electronic devices, and servers from malicious attacks.

What is the best way to encourage a vendor to improve their cyber security measure?

Training and education are the best ways to encourage a vendor to improve their security measures.