Third party risk has emerged as a key risk for organizations across the globe due to increasing regulatory scrutiny and increase in the number of third-party incidents impacting organizations. Regulators expect organizations to manage third parties – and by extension, fourth parties – in the same way they manage an internal function or division.
Third Party refers to any organization-owned or non-organization entity with whom the organization engages in a business relationship. Third party can be anybody external to a company and provides goods or services to the company. Other terms used in this conjunction are Vendor, Supplier, Dealer, associate etc. Third parties continue to be an easy target, as evidenced in major incidents in the last few years. As per, 2018 Taking the Pulse of Third-Party Risk Management Survey by CFC and Aravo, 57% Responders don't have an inventory of all third parties with which they share sensitive information and 74% Believe that Third-Party vendor selection overlooks key risks, with 64% saying that their organization focuses more on cost than security when outsourcing.
Significant component for a Third-Party Risk Management (TPRM) framework is identifying and minimizing potential business risks, including regulatory and legal liabilities arising from outsourcing of business functions to third party vendors.
Third party risk oversight effort should be driven by third party risk profile covering entire third-party risk spectrum from inception to termination. Organization identify, categorize and prioritize their third-party arrangements. Post analysis of the arrangement, risk exposure of third parties is validated which includes due diligence. Different types of assessments are conducted based on supplier risk profiles and list of requirements are determined to be assessed. Gaps are identified and managed prior to the final sign-off to contract termination.
With a plethora of software solutions in the market, selecting & customizing a solution that meets the needs of the business while staying compliant to regulatory requirements is a challenge. Third party risk intelligence and automation can be leveraged to improve efficiency and effectiveness of third-party risk management.