Third-Party Risk Management For The Finance Sector Explained
Although the Australian finance sector comprises thousands of suppliers, the breach at SolarWinds has brought into the limelight issues surrounding supply chain management and third-party risk management across the sector. As a result, several financial companies are incorporating new and creative ways to assess which vendors and third parties they work with. Certification, processes and visibility are the most important aspects being considered as part of this process.
Established third-party risk management for financial institutions enables organisations to identify and address cyber risk and improve their security posture. But what exactly is third-party risk management, and why is it important for the finance sector? Read on to find out.
What Is Third-Party Risk Management?
Sometimes referred to as vendor or supplier risk management, third-party risk management is part of an institution’s wide-ranging risk management strategy. It is designed to suit a company’s specific cyber security needs by compelling suppliers to comply with reliable cyber security practices to engage with the business.
Third-Party Risk Management for the Finance Sector
Third-party risk management for financial companies focuses on PCI ,Personally Identifiable Information (PII) and protecting business-sensitive data. According to the Office of the Australian Information Commissioner (OAIC) and based on notification of data breaches, the finance sector is the second most targeted industry for cyber attacks, accounting for 12% of all breaches. This is second only to the health sector at 18%.
In contrast to many industries, financial institutions also deal with significant data sets of PII that are linked directly to entities’ finances. This makes the finance sector the most lucrative industry for malicious actors attempting to obtain sensitive and personal information. There is also added risk as most financial institutions in Australia exist in a highly connected business environment, where an institution’s cyber buoyancy relies on others. Therefore, third-party risk management for financial organisations is critical to help prevent breaches and secure sensitive data.
Critical Areas of Third-Party Risk Management for the Finance Sector
Third-party risks present potential threats to organisations’ employee and customer data, including financial information and operations. Most of these risks originate from the supply chain and other parties involved in providing financial institutions with products and services and access to privileged systems. Fortunately, third-party risk management for the finance sector addresses defined critical areas to help prevent such threats.
Although technological implementation applies to different industries, it is fundamental in the entire risk management strategy in the finance sector. It features security and implementation of controls that cover information systems, including that of suppliers and vendors. Several frameworks within technological implementation exist that deal with security controls directly, but largely depend on information systems’ technical aspects.
The third-party population focuses on the scope of third-party networks and determines how many make up the institution’s risk management strategy. Several organisations strive to reduce their third-party networks to lessen cyber risk and protect their systems. This means that financial institutions prefer having fewer vendors and suppliers to lower vulnerabilities for exploitation. However, it is essential to assess all third parties involved and analyse their risk to help audit security controls and make necessary changes to secure information systems.
Besides third-party networks, extended networks, also known as fourth-party networks, may pose risks to financial companies. These involve suppliers or vendors of immediate suppliers and vendors directly linked to financial institutions. In these instances information systems can become more intricate to secure, with extended networks making the risk complex to manage. The most effective way to address such risks is to ensure third-parties perform their due diligence on their own suppliers, enabling them to implement cyber security best practices with fourth-party networks.
The increasingly complicated cyber landscape has made lawmakers impose regulations that demand financial institutions protect their information systems. In addition, most of these statutes and frameworks include third-party risk management requirements that help organisations become more prepared in the event of an attack. Regulatory compliance has helped reduce cyberattacks, but breaches continue to rise due to the augmented sophistication of cybercriminals.
Most traditional risk assessment techniques have become ineffective in combating the ever-evolving and innovative threats posed to businesses. Whilst the financial sector may consider assessing the potential risks linked to third-party networks, the cyber security environment remains dynamic. Engaging the whole information supply chain, implementing real-time tracking, and adopting modern cyber security best practices can help improve risk management strategies.
Building Cyber Culture
Financial institutions continue to face challenges with cyber security resilience despite advancements to streamline their operations. This area of third-party risk management involves creating a successful cyber security architecture by incorporating requirements across different areas of the business. Typically, building cyber culture within a business promotes cyber security awareness within the organisation and its third-party networks. This reduces risks linked to human error and builds a security culture within the institution.
Importance of Third-Party Risk Management Strategies for the Finance Sector
Creating a practical third-party risk management strategy offers multiple benefits to financial institutions. Generally, risk management strategies reduce the number of cyber threats targeting financial institutions, which is important considering the increasing frequency of attacks within the industry. Another benefit is that businesses tend to protect and maintain their reputation, gain a competitive edge, enhance their IT support, prevent or reduce downtime and promote employee engagement and education as part of the process.
Risk management strategies also reduce the costs associated with an attack and critical customer and administrative data loss. This enables financial institutions to budget appropriately for the security landscape and cyber risks, subsequently lowering overall spending, enabling management to increase revenue and strategize more effectively.
In addition, third-party risk management plays a critical role in building customer relations. While it is primarily created to protect information systems, this risk management also helps eliminate or reduce concerns the general public may have regarding sensitive information provided to the organisation. This increases customers’ trust with the business, despite the growing concern for cyber security.
Most financial institutions in Australia face rising threats in breaches associated with third-party networks. With the emphasis on cyber security risk management, several organisations’ third-party networks present vulnerabilities that expose financial institutions to attackers. Besides, the finance sector has a global third-party network that readily extends into fourth party networks. Therefore, the focus on third-party risk management helps mitigate various threats and secure information systems within the institution.
Tikabu is an Australian company that specialises in comprehensive cyber security solutions to help financial institutions stay ahead and mitigate the risks associated with third-party networks. Get in touch with us here to learn more.