Due to the nature of their business and customer demands for innovation, many financial services organizations have vast third-party ecosystems that support their day-to-day operations. While these vendors help streamline business-critical functions, they also expose financial institutions to higher levels of cyber risk. The increased reliance on third-party vendors has intensified the need for financial services firms to have highly effective third-party vendor risk management programs in place.
With an established third-party risk management (TPRM) program, organizations are better able to identify and address cyber risk, helping to enhance their security posture. This is important as it bolsters both internal and customer security. In this post, we will explore top third-party risk management considerations for financial institutions to keep in mind as they build out their risk management programs.
Common third-party risk management program weaknesses
When building or auditing a risk management program, there are several common weaknesses that you should look to address as they can inhibit your ability to accurately assess vendor risk. Below are common weaknesses observed in financial institutions’ vendor risk management programs:
- Insufficient oversight from the institution’s board of directors.
- Lack of an established outsourcing policy.
- Contracts that lack specificity with regard to vendor security practices and risk response.
- Vendor performance reviews that are conducted by personnel who lack experience in risk management.
- Lack of or inadequate disaster recovery tests between the vendor and the financial institution.
- Third-party information security and cybersecurity processes are not adequately reviewed by the financial institution.
5 TPRM considerations for financial services
Outside of enhancing the accuracy and efficiency of threat detection, vendor risk management (VRM) allows banking organizations to monitor the effectiveness of their third parties’ security controls.
Below are five considerations for effective vendor risk management at your financial institution:
1. Vendor due diligence
Vendor due diligence is the process of analyzing and auditing a third-party vendor’s security infrastructure. In order for vendor due diligence to be effective, it must be conducted on an ongoing basis so that all threats and vulnerabilities are addressed as they arise. Due diligence is often carried out using third-party questionnaires that help financial institutions gain a holistic view of their vendor’s ecosystem. The more comprehensive the questionnaire process is, the better. This way, any problem areas are addressed before they can be exploited by cyber adversaries.
2. Regular risk assessments
Performing cybersecurity risk assessments is a key part of any organization’s vendor risk management program. The purpose of risk assessments is to determine which vendor cyber risks pose the greatest threat to your organization’s overall security posture. Once you identify high-risk vendors, you can then work with them to ensure that all potential threats are addressed. Risk assessments also allow you to classify vendors, helping with risk prioritization. This, in turn, helps you to streamline the risk management process, as you can devote more resources to high-risk vendors.
3. Adherence to strict regulatory guidelines
Vendor compliance is especially important in the financial services industry as it is highly regulated, and non-compliance can lead to a significant financial and reputational loss. When working with third-parties, it is critical that you establish compliance guidelines so that both you and your vendors understand how to adhere to relevant regulations. Additionally, you should create programs that continually monitor vendor compliance. The frequency at which vendors, suppliers, and other third parties are reviewed is imperative in reducing overall regulatory risk, so having continuous compliance programs is a necessity.
4. Contracts and service-level agreements
In today’s digital business environments, it is vital that third-party contracts establish vendor responsibilities to meet specific cybersecurity standards or guidelines. When drafting contracts, include performance KPIs that you can use to assess third-party security with respect to your organizational cybersecurity goals. By laying out cybersecurity expectations with your vendors, you create business relationships that are built on transparency and trust, helping to limit the impact of potential threats.
5. Business continuity and response planning
A key component of risk management is assessing your vendor’s disaster recovery and business continuity plans. You should evaluate the protocols your vendors have in place to implement their disaster recovery and business continuity plans as well as whether these plans are in line with your cybersecurity policies. It is also important to discuss your business continuity and disaster recovery requirements with vendors so that they are able to make adjustments to their plans as necessary. Finally, if possible, you should integrate your vendors’ business continuity plans into your own plan, in order to streamline review and implementation. This also helps improve the effectiveness of these plans as it ensures that individual vendor roles and responsibilities are clearly communicated.
Protecting against financial and reputational risk with help from SecurityScorecard
For financial institutions to effectively monitor cyber risk, they must be able to continuously assess the cyber health of their vendors. With SecurityScorecard’s financial services solutions, organizations can proactively manage third-party risk. Our cybersecurity solutions help you gain an outside-in view of your vendor ecosystem so you can quickly and easily identify and address cyber risks.
By assigning a letter grade to each vendor, SecurityScorecard’s third-party risk management solutions help you accurately evaluate vendor security, and assess the risk they pose to your business. This allows you to map vendor vulnerabilities to security standards within the financial industry so you can ensure overall security and compliance.
As more financial services firms rely on third-party vendors to conduct daily operations, being able to actively address vendor cyber risk is crucial. With SecurityScorecard you can optimize your risk management processes while strengthening vendor relationships.
