Data PrivacyThird-Party Risk Management and Data Privacy

INTRODUCTION

Information Systems Audit and Control Association (hereinafter referred to as “ISACA”) defines third-party risk management (hereinafter referred to as “TPRM”) as “the process of analyzing and controlling risks presented to one company, one’s data, its operations and finances by parties other than one’s own company”.

Non-customer entities with which a company have established a relationship to outsource specific operational duties or source products or services are referred to as parties other than one’s own company. Third parties, vendors, suppliers, partners, and business associates are all terms used to describe these groups.

These third parties are a possible source of risk for the company.  TPRM demands the development of policies that allow businesses to minimize risks, both during onboarding and throughout the life cycle of third-party suppliers doing business with them.

DATA RISK IN THIRD-PARTY MANAGEMENT

1. Data breaches and the associated third-party data risk

Third-party data breaches are becoming more common in businesses. Majority of the third-party data breaches leads to misappropriation of the company’s sensitive or confidential information. Due to the widespread expansion of businesses across the borders and the global market as a whole, the number  of cybersecurity incidents involving third parties is on the rise. Furthermore, there has been no progress in controlling and preventing third-party cybersecurity vulnerabilities.

2. Strategic shortfalls in third-party risk management governance

When third parties and organizations are not in agreement on decisions and objectives, strategy is jeopardized. It is critical to keep an eye on third parties to ensure that strategic risks does not translate to a lack of compliance or financial risk.

Typically, the accountability of third parties are scattered throughout the organization, at several levels and hierarchy. Hence, it gets difficult to detect any risks associated with data shared by and to third parties. There have been substantial trends in accountability for the proper administration of TPRM systems.

3. Lack of visibility into third party relationships

Several businesses fail to keep track of all of the third parties with whom they share information. These inventories tend to not cover all of the third parties with whom their company has a relationship and who are the potential parties that have access to their sensitive and private information.

However, as third-party relationships are becoming increasingly important, companies and businesses have started to maintain a thorough inventory of all third parties with whom they disclose sensitive and confidential information.

In the backdrop of the above, one of the major concerns among the companies are a lack of centralized control over third-party connections, a lack of resources to track third parties, the complexity of these relationships, and the inability to maintain track due to frequent turnover in third parties as reasons for their failure to keep track.

4. The realities of today’s third-party risk management programs

Third-party risk demands a significant amount of effort and attention to properly administer an effective programme. Most businesses have limited time and resources to resolve issues raised by suppliers (third parties) and the supply chain as a whole.

In-house security teams must be able to define information security requirements for suppliers, document and classify vendors based on risk, assess third-party security posture, develop contractual updates to align responsibilities, and monitor vendor security implementation to ensure that risk issues are addressed properly.

5. Failure of financial viability of a third party, financial fraud

When sensitive business data of a company gets transferred to third parties for whatsoever reason, there is always a potential risk that a third party might expose the data which would wreak havoc on one’s finances.

In today’s world, it’s difficult to overstate the magnitude of fraud risk that third parties pose to businesses. With fraud threats coming from a variety of places, including customers, suppliers, agents, intermediaries, and other advisers, it’s vital that businesses not only know who they’re working with but also have systems and procedures in place that can keep up with the ever-changing fraud risks.

The majority of people associate fraud with money being plundered in some fashion, but it’s vital to recognize that the threats that businesses face are much broader. Bribery and corruption, bid-rigging and account manipulation, as well as large-scale data theft and reputational loss, are all examples of third-party fraud. Recognizing the primary risks in their organization and putting in place suitable procedures and protections to reduce those risks is a huge problem for businesses.

6. Reputational damage

Dissatisfied customers, improper interactions, poor recommendations, security breaches, and legal violations are all instances of how a company’s reputation and standing can be harmed.

When a third-party system failure or security breach affects millions of people, or when a well-known company is heavily penalized or repeatedly called out with regulatory matters requiring attention, the reputation of the companies concerned might suffer. The free-flowing nature of information also plays a role herein, and might also become a global concern.

BEST PRACTICES IN THIRD-PARTY RISK MANAGEMENT GOVERNANCE

In an age of security breaches and litigation, every company requires a robust plan for identifying and mitigating risks associated with the usage of third parties, such as vendors, suppliers, partners, contractors, or other service providers.

Data breaches occur because these types of firms frequently have access to intellectual property (hereinafter referred to as “IP”), sensitive data, Personally Identifiable Information (hereinafter referred to as “PII”), and Protected Health Information (hereinafter referred to as “PHI”).

Because these third-party interactions are crucial to business operations, every company must incorporate a TPRM component into their overall cybersecurity plans. Working with a third-party vendor, on the other hand, is inherently risky, especially when one is putting the trust in a company whose standards and procedures the company can’t oversee.

The best practices followed around the globe for third-party risk management success are as follows:

1. Identifying all third-party risks

Risk identification is the first step in risk assessment or risk analysis, and it is an essential component of the risk management process because it can’t be managed until the risks are calculated and measured. Understanding the organization’s objectives is the first step in the risk identification process. It should then include any potential risks, hazards, and events that could jeopardize its capacity to achieve those goals, regardless of whether they are within your control.

2. Classifying third parties

Creating a list of third-party providers who have access to your systems, networks, and data often helps to understand the extent of third party relations a company has. Once the classification is done, the third parties can be categorized as per risk levels (high, medium, or low).

3. Defining third-party performance metrics

Monitoring third-party security performance across the company requires objective measurement. As a result, it’s critical to create metrics that will assist in assessing, monitoring, and prioritizing third-party risks, especially since not all third-party connections are the same and not all evaluations have the same needs.

4. Determining the security frameworks and regulatory requirements

Monitoring third-party security performance across the company requires objective measurement. As a result, it’s critical to create metrics that will assist you in assessing, monitoring, and prioritizing third-party risk, especially since not all third-party connections are the same and not all evaluations have the same needs. This degree of understanding will assist you in better understanding the possible impact a vendor may have on your firm.

5. Assess risk on individual third parties

Developing a risk profile for each vendor will assist in defining the relationship and understanding the products / services they will supply, as well as their relevance to the organization. Thus, continuous monitoring of supplier risk is necessary because business partners and vendors can, and do, change their processes all the time

IMPACT OF GDPR ON THIRD-PARTY RISK MANAGEMENT PROGRAMS

The General Data Protection Regulation (hereinafter referred to as “GDPR”) has imposed various new restrictions on commercial entities to protect the personal data of European Union  (hereinafter referred to as “EU”) citizens. Organizations that are data controllers or processors must have the assurance that their third-party suppliers/vendors, as well as sub-contractors, are compliant with GDPR standards – in other words, they are now liable for personal data managed by their third parties.

However, the question remains as to whether and how the companies and corporate entities are prepared to deal with this in their business practices. The success of this integration is dependent on several important factors.

TECHNOLOGY AND DELIVERY MODELS

Organizations require a fresh approach to third-party security following cyberattacks brought on by supply chain weaknesses. TPRM software and technologies may be the solution to filling the gap for businesses in a developing market.

Also known as vendor risk management (hereinafter referred to as “VRM”), TPRM focuses on onboarding, risk assessment, and due diligence for businesses that engage with third parties. It extends beyond generic risk management and governance, risk, and compliance (hereinafter referred to as “GRC”) solutions.

In addition to helping organizations get insight into and an awareness of the overall IT and security environment – technology, processes, and human capabilities of the third parties in their ecosystem, a successful TPRM programme prioritizes vendor risks. Each entity in the supply chain i.e. vendors, suppliers and organizations that make up the supply chain, contractors, subcontractors, and member represent a distinct source of risk, and a breach at one can affect all of them, including clients.

An effective TPRM programme can benefit an organization by:

• Determining the crucial suppliers;
• Determining dependencies;
• Classifying and prioritizing risks;
• Conduct thorough due diligence of third parties;
• Implement contractual protection requirements such as data protection policies, encryption, access controls, breach notifications, and periodic assessments of third-party risks;
• Develop criteria for notification of customers, donors, third parties, and law enforcement when a security incident and/or data breach occurs;
• Conduct ongoing employee training on third-party risks

AMLEGALS REMARKS

There is no pre-defined set of techniques that an organization can use to assure the most efficient form of third-party risk management. That doesn’t say that there aren’t some fundamental actions an organization can take to lay the groundwork for a third-party risk management system that works best for one company.

Knowing and categorizing the company’s third parties is the first step in effective third-party risk management. Organizations frequently have several teams that deal with multiple third parties on their own. It’s critical to keep a centralized tracking mechanism wherein each team identifies all of the third parties they work with.

Subsequently, prioritizing the risk levels associated with different categories of third parties is of utmost importance. Companies should implement due mechanism for ensuring the processing of data by third parties, and create more awareness about the same within the organization.

– Team AMLEGALS assisted by Mr. Saksham Trivedi (Intern)