There is nothing like a highly visible data breach to get a chief information security officer (CISO) fired or to dismantle a strong team and reputation. As the year of the data breach spirals on, third-party management has moved to the top of the priority list. Security professionals and executives grapple to ensure that they are applying the right oversight to their suppliers, partners and service providers.
What is really disconcerting is the endless parade of businesses that have been breached and are publicly demonized in the headlines for not protecting client and employee data. Many are not immature startups, but rather those cemented in proven business model foundations, underpinned with time-tested practices and validated by large and trusting consumer bases. These consumer bases include most of us as everyday customers. In fact, if you are not in an affected consumer base, now is a good time to buy a lottery ticket.
Managing Third-Party Security
Effective third-party management is a tall order to fill not because of the impact of a breach and the magnitude of vendors that must be managed, but rather because of the challenge of managing those not directly in the organization. Third-party error is the most impactful factor in the capital cost of a data breach.
Ponemon Institute, “2014 Cost of a Data Breach Study,” February 2014
This number may make all third parties appear as predators and not business partners at all. The magnitude of tracking and managing these external parties is also overwhelming because the average organization has somewhere between 20,000 and 50,000 suppliers, partners and service providers.
This is a huge business management issue, and the CISO is burdened with the responsibility of ensuring these external partners toe the line, step within policy and act like they have the best interests of the business at heart.
Let’s pivot to what an organization must do to regain its footing and move toward excellence in managing third parties. First and foremost, it must be understood that it is going to take more than just being compliant with regulations such as the Payment Card Industry (PCI) or Federal Financial Institutions Examination Council (FFIEC) standards, though adhering to regulations is a good baseline. The PCI Security Council released Version 3 in August. The Office of the Comptroller of the Currency became the first major U.S. banking regulator to issue updated guidance on third-party risk. The FFIEC released new guidance with practical applications this fall.
Security experts agree on the following list of best practices when managing third parties:
- Ensure you have a comprehensive list of all third parties with which your company does business. Remember the adage “you can’t manage what you can’t see.” This list will cross many business lines and requires a central authority or validation process.
- Risks should be assigned to each of the third parties. The risks should stem from the firm’s risk registry that is reviewed and ranked annually. A ranking can start with levels such as high, medium and low and be refined later.
- Establish a governance and escalation procedure. Because suppliers are associated with a cross-section of business lines, there needs to be a central authority that decides how to solve problems. If forensic evidence points to a supplier, there must be a business authority that can decide the appropriate response actions.
- Actively monitor third parties for compliance to contractually defined policies. The word “contractually” is emphasized here because the contract carries the most weight in any dispute or defense.
- The monitoring process should be based on a set of rules, which should be structured on the type of service that is provided. Categorizing service types and defining monitoring rules will save time and provide consistency. For example, when outsourcing your information technology (IT) business, you will want to know the vendor’s IT availability statistics and patching status.
Managing third-party risk in today’s complex and dynamic world is a challenge that stumps even the best of companies. A strong third-party risk management program is essential in these times and will provide long-term payoffs. Consistently evaluating the effectiveness of the program through targeted self-testing can help reduce those sleepless nights and mitigate risk.