When it comes to safeguarding your business, third-party risk management plays a crucial role in identifying and mitigating potential vulnerabilities.
Only 54% of organizations have a centralized approach to managing these risks, leading to potential oversight and vulnerabilities.
But a common question arises: who owns third-party risk management?
Is it the responsibility of compliance teams, IT departments, or senior leadership? Understanding ownership is essential for a cohesive approach that minimizes risks and ensures accountability. There are many aspects to understanding the risk of a third-party relationship – financial, operations, cybersecurity, geo-political, environmental. The following post focuses on cybersecurity risk, but the concepts can be applied to those other areas.
Let’s explore the roles and also the responsibilities in risk management to help organizations build a clear path to security and compliance.
Who Owns Third-Party Risk Management?
Ownership of third-party risk management (TPRM) isn’t confined to a single department. Instead, it requires collaboration among various stakeholders, ensuring comprehensive oversight and risk mitigation. Here’s how responsibilities are typically divided:
- Senior Management: Oversees third-party relationships and aligns TPRM strategies with business goals.
- Third-Party Risk Management Team: Develops the framework, including policies, processes, working with third-party risk management companies and tools, to mitigate vendor risks.
- Third-Party Owners: Manage specific third-party relationships and assess associated risks.
- Subject Matter Experts (SMEs): Evaluate vendors’ risk practices, controls, and compliance measures.
- Business Unit Leaders: Recommend potential vendors they’d like to do business with that assists their day-to-day activities.
- Internal Auditors: Assess the effectiveness of the organization’s TPRM program.
- Compliance Team: Ensures all shared data complies with regulations and internal policies.
- Legal and Procurement Teams: Conduct risk evaluations during vendor onboarding and contract negotiations.
Depending on the size and IT maturity of the organization, many of these responsibilities may be consolidated by a smaller number of teams or a few people.
This multi-stakeholder approach ensures that third-party risk management roles and responsibilities are addressed holistically, safeguarding organizations against potential vulnerabilities.
Top Third-Party Risk Certification Programs
Earning a certification strengthens your expertise and demonstrates your commitment to effective risk management. Pursuing certification will enhance your professional credibility, validate your expertise, and position you for leadership in the evolving field of TPRM. In fact, popular certifications include:
- Third-Party Cyber Risk Assessor (TPCRA) Certification
- Certified Third-Party Risk Professional (CTPRP)
- Certified Third-Party Risk Assessor (CTPRA)
- Certified Third Party Risk Management Professional (C3PRMP)
These credentials validate your skills in assessing vendor risks, designing frameworks, and ensuring compliance with industry standards.
What Are the Key Elements of Third-Party Risk Management?
An effective third-party risk management framework integrates critical components that help organizations identify, mitigate, and monitor risks tied to vendor relationships. These elements work cohesively to ensure compliance, data security, and also operational resilience. Here’s a closer look:
- Risk Assessment: Identify potential risks across financial, operational, and cybersecurity domains using robust third-party risk management tools.
- Due Diligence: Vet vendors thoroughly by analyzing their policies, practices, and risk controls as part of the framework.
- Contractual Agreements: Define roles, responsibilities, and expectations in contracts to ensure risk mitigation strategies are enforceable.
- Ongoing Monitoring: Use third-party risk management tools to continuously track vendor performance and compliance.
- Incident Response Planning: Create clear protocols for addressing vendor-related incidents or data breaches efficiently.
- Regulatory Compliance: Ensure vendors adhere to relevant industry standards, like GDPR or ISO 27001, through the framework’s compliance processes.
- Reporting and Communication: Maintain open communication with internal stakeholders and vendors about risks and mitigation strategies.
Implementing a comprehensive third-party risk management framework equipped with modern third-party risk management tools ensures organizations can proactively manage risks while fostering strong vendor relationships. Depending on the organization’s needs, there could be a need to hire third-party risk management companies with tools for automating or monitoring some of these processes or to perform some or all of these duties in a managed service capacity.
What are DORA requirements for third-party risk management?
The Digital Operational Resilience Act (DORA) establishes comprehensive requirements for managing third-party risks within the financial sector. In fact, these requirements ensure that financial entities maintain operational resilience when engaging with external Information and Communication Technology (ICT) service providers.
Key DORA requirements include:
- ICT Risk Management: Identify, assess, and mitigate ICT risks through a structured framework.
- Incident Reporting: Report and investigate ICT incidents with clear protocols.
- Resilience Testing: Regularly test ICT systems to find and fix vulnerabilities.
- Third-Party Risk: Manage risks from third-party ICT providers with due diligence and monitoring.
- Information Sharing: Share cyber threat intelligence among financial institutions for collective security.
The primary purpose of DORA is to enhance the digital operational resilience of financial entities by establishing a unified regulatory framework across the EU. This framework addresses ICT risk management, incident reporting, and the oversight of third-party service providers, thereby strengthening the stability and security of the financial sector.
Additionally, for a deeper dive, read our blog on What is the Purpose of DORA?
While DORA applies broadly within the financial sector, certain entities are exempt. These exemptions include:
- Microenterprises: Organizations with fewer than 10 employees and an annual turnover (revenue) or balance sheet total not exceeding €2 million.
- Specific Financial Entities: Certain managers of alternative investment funds and insurance and reinsurance undertakings, as specified in relevant EU directives.
What is a Third-Party Risk Management Program?
A third-party risk management program is a formal process organizations use to identify, assess, and manage risks from external vendors or service providers. So, it helps protect sensitive data, ensure compliance, and maintain business operations.
- Third-Party Risk Management Framework: Outlines processes, tools, and methods for consistent risk management.
- Third-Party Risk Management Policy: Defines rules, roles, and procedures for assessing and mitigating risks.
Reducing Third-Party Risk with Team Coordination
Determining who owns third-party risk management is key to ensuring that risks are addressed proactively and effectively. It requires collaboration among senior management, compliance teams, IT departments, other stakeholders, and each vendor team, with each playing a critical role in mitigating vendor-related vulnerabilities. Keeping internal teams apprised of:
- your inventory of vendors
- what types of your company data that each vendor has access to
- categorizing them by criticality to your organization
- cyber hygiene of your vendors
- What contract language you agreed to related to service outage, breach and remediation times are foundational elements towards reducing third-party risk.
Take control of your third-party risk management today. FortifyData offers advanced solutions to help you assess, monitor, and mitigate third-party risks (as well as enterprise risk) with precision. Discover how our comprehensive tools and frameworks can empower your organization to navigate third-party risks with confidence and achieve regulatory compliance seamlessly.
