Information Security Risks with Vendors/3rd Parties – How Does it Matter for Banking & Financial Service Lines?

Information Security Risks with Vendors/3rd Parties

Information security risk management, or ISRM, is the process of managing risks associated with the use of information technology. It involves identifying, assessing, and treating risks to the confidentiality, integrity, and availability of an organization’s assets. The end goal of this process is to treat risks in accordance with an organization’s overall risk tolerance.

Information Security Risks assisted Business models for banking & financial services(BFS) institutions have evolved from being a monolithic banking entity to multi-tiered service entity.

Though outsourcing is cost beneficial to companies, this approach comes with its own set of drawbacks. It is judicious to say that every outsourcing enterprise should be aware of the risks that vendors bring to the table.

Though vendors bring in a lot of operational Information Security Risks depending on the business engagement, a methodology to manage only the 3rd party Information Security Risks are discussed here.

 

 

Information security risk

 

 

How do you begin resolving it?

 A perfect place to begin is with the sourcing team and /or procurement team depending on how your organization is set up. In an ideal world, these teams are expected to have an inventory of all vendors, 3rd parties & Partners of your organization.

Once we have this inventory in place, the IT vendor risk management (IT- VRM) team needs to segregate the IT vendors from the non-IT ones. This is a onetime activity. For future needs, it is recommended to have the sourcing team segregate vendors basis on their business engagement (IT vs Non-IT).

 

 

Risk management

 

 

Understanding your Vendors & the Information Security Risks they carry:

 

One of the simplest & efficient way to understand your vendors is by having a scoping checklist, that details the vendor business with your organization, kind of data touchpoints & exchanges, kind of Information Security Risks that your organization is exposed by this outsourced business.

This information is usually available with the vendor manager representing your organization in the vendor relationships.

Below is the list of Information Security Risks pointers (not limited to) that you might want to consider asking your vendor manager.

 

  • Regulatory risk– Does this relationship affect your regulatory posture? What is the penalty associated with such regulatory non-compliance?
  • Reputational risk– Does this service impact your clients & the reputation you hold with them?
  • Financial risk– Any financial Information Security Risks associated with business engagement?
  • Information security risks– what data are shared as part of the business engagement with the vendor? how secure is the vendor with regards to protecting your organization data?
  • Resiliency risks – Does the vendor introduce any single point of failures to your business practices?

 

Vendors & the Information Security Risks

 

 

 

Information Security Risks Rating, Assessment recurrence & Assessment type:

In Information Security Risks, The basis on the outcomes from the previous step, a consolidated risk matrix may be developed with the total impact & likelihood of the vendor. Depicted below is a sample of a Qualitative risk matrix.

Recurrence of vendor assessment lies with the Information Security Risks rating derived earlier. Industry best practice is to have more frequent & stringent assessments for critical vendors than other vendors.

 

Also, the degree of assessment for each vendor might vary depending on the Information Security Risks vendor carries. For instance, a critical vendor providing infrastructure services could be rated a High/critical vendor & would hence need a more detailed IT assessment.

 

Below list gives a description of the types of tests that could be performed for any Vendor

  1. Test of design:Evaluate, review Policy, procedures, standards&contractsof the vendor organization
  2. Test of Effectiveness: Evaluate & review the evidence that are in support of the design evidence produced by the vendor for various controls.
  3. Physical Site- visitIT-VRM team could plan to visit the vendor premises for a much broader assessment, this is the most exhaustive forms of testing & can be restricted to be performed only for Critical/high vendors.

 

 

Information Security Risks Rating

 

 

Conclusion:

IT Vendor Risk management is one service that should either be managed by a dedicated team such as the ITVRM team (or) it can be managed by the internal audit team. In both cases, the lifecycle will be very similar to what was explained.

Most organizations consider outsourcing as a technique to evade Information Security Risks & costs, but outsourcing organizations are still the owners of the risks.

Outsourcing should be adopted only after considering all the risks & benefits from the vendor relationship, if the benefits overweigh the risks then it would be a wise decision to outsource it.

Also, a robust vendor risk management process should be in place to evaluate the risk profiles of vendors on a consistent basis. These risks should be part of the overall risk register that your organization maintains.

 

 

IT Vendor Risk management

 

 

 

 

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