The finance industry has the second highest average data breach costs at US$5.97 million per breach, according to IBM and Ponemon Institute’s 2022 Cost of a Data Breach report. While strict regulations force finance companies to invest heavily in protecting customer data, their third-party vendors don’t necessarily do the same.
Finance security teams need a proactive approach to third-party risk management. Visibility into your vendor’s attack surface is critical. A robust vendor risk management (VRM) program helps your organization visualize the third-party attack surface to assess and mitigate the risks vendors pose to your organization.
This article explores how finance companies can reduce third-party cyber risks through an effective vendor risk management process.
Understanding Vendor Risk Management in Finance
Like most modern businesses, your organization is likely outsourcing many critical data management functions to third-party vendors. When you share sensitive data through these partnerships, you increase the risk of this data being compromised in a data breach.
Finance is a high-risk industry for supply chain attacks and third-party data breaches. Banks, credit unions, insurance firms, and other financial institutions, manage millions of customers' personally identifiable information (PII). Skilled hackers, like ransomware gangs, bypass strong industry security measures by finding faster entry points to valuable financial data.
They seek third-party threats and vulnerabilities which emerge from poor vendor security practices. These security issues usually don’t come to light until it’s too late and a security breach has already occurred.
The cybersecurity risks of third-party relationships also facilitate other types of business risks. A comprehensive vendor risk management (VRM) program addresses the following risks throughout the vendor lifecycle.
- Operational risk: Without a business continuity plan to follow in the event of a third-party breach, your organization will face business disruptions until the source of the breach is contained, and the security issue is remediated.
- Legal, regulatory, and compliance risk: Your organization is responsible for performing due diligence and vetting vendors who don’t comply with industry requirements. The risk assessment process surfaces any areas of non-compliance to address before business relationships are formed.
- Reputational risk: Unmanaged vendor cyber risks increase the chances of a third-party data breach exposing customer data, causing negative public opinion and reduced customer trust. Continuous monitoring of the third-party attack surface ensures that high-risk security issues are remediated in an appropriate timeframe.
- Financial risk: Your organization will receive significant regulatory fines for any failure to safeguard customer data, even if a third party is responsible. Continuously monitoring your service providers’ security postures allows security teams to detect and respond to third-party cyber risks instantly.
- Credit risk: If a service provider fails to meet financial agreements in the vendor contract, your organization will face non-compliance with industry regulations for failing to perform due diligence. Compliance and security teams must perform a risk assessment on all potential vendors to determine financial health before forming business relationships.
- Strategic risk: Your organization will struggle to meet broader business objectives, such as customer retention, if a third-party data breach occurs. Early detection of third-party threats and vulnerabilities can prevent data breaches from happening in the first place.
Why Vendor Risk Management is Important for Finance Companies
Though finance security teams may fulfill strict regulatory requirements with robust information security programs, third-party risks could still remain. Your vendors aren’t necessarily following the same industry standards your security teams follow, which exposes your organization to threats originating from the vendor network.
Data breaches are the responsibility of the affected organization, no matter how far down the supply chain they occur. Victim organizations are guaranteed to face regulatory fines, legal action, and reputational damage following a third-party breach.
Organizations with a vendor risk management program can asses their vendors’ security postures throughout the lifecycle – from procurement to offboarding. VRM processes proactively detect third-party threats and vulnerabilities that could cause data breaches, allowing security teams to respond faster.
The Consequences of a Third-Party Data Breach in Finance
The hackers initially exploited a vulnerability in Accellion’s FTA (File Transfer Appliance) server to gain access to hundreds of customers’ data, including management consulting firm Guidehouse – a third-party vendor to Morgan Stanley.
With access to Guidehouse’s server, the hackers found and stole personal data belonging to Morgan Stanley customers. Exposed PII included:
- Dates of birth
- Social Security numbers
The Accellion breach was just one of Morgan Stanley’s recent failures to manage third-party vendor risk.
In September 2022, the firm hired a moving and storage company with no data destruction experience to dispose of hard drives and servers containing 15 million customers’ PII. Some of these hard drives were later found for sale online.
Morgan Stanley was held fully responsible by the U.S. Securities and Exchange Commission (SEC) for failing to safeguard its customers’ sensitive data, receiving a $35 million fine for the third-party incident.
How Finance Companies Can Manage Vendor Risk
Finance companies can avoid the harsh consequences of third-party data breaches by mitigating third-party cyber risks. Below are four ways to manage vendor risks in your organization.
1. Eliminate Third-Party Attack Surface Blindspots
Cybercriminals actively seek third-party security issues as an alternative path to a target organization's data. Capable ASM solutions, like UpGuard, extend this visibility to the third-party attack surface by continuously monitoring external threats and vulnerabilities affecting an organization and its vendors.
2. Assess Vendors Before Onboarding
Conducting due diligence allows compliance and security teams to determine the potential risks vendors pose to an organization before signing vendor contracts.
Finance companies have hundreds to thousands of vendors to assess, and responses are often delayed. Manual processes further complicate risk assessments; spreadsheets are increasingly challenging to maintain as your vendor inventory grows.
A fully integrated vendor risk management platform, like UpGuard, streamlines the risk assessment process with pre-built security questionnaires and automated workflows for sending, receiving, and storing vendor questionnaires.
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3. Manage Regulatory Compliance
Financial services face strict data protection standards, including third-party requirements for vendors handling sensitive data. Ensuring your vendors align with industry standards requires routine assessments and auditing. Creating, sending, and managing compliance questionnaires in bulk is time-consuming without an automated process.
With an automated vendor risk management solution, like UpGuard, organizations can easily assess their vendors' alignment with compliance requirements, using pre-built questionnaire templates for global security frameworks and regulations, such as the GDPR, PCI DSS, and CCPA. Security teams can request, track, and log remediation through automated workflows.
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4. Identify Third-Party Data Leaks
As popular supply chain attack targets, finance companies should be especially vigilant about identifying data leaks, including third-party data leaks. Fast data leak detection is the key to avoiding further compromise.
A reliable data leak detection solution, like UpGuard, continuously monitors all layers of the web for data leaks affecting an organization and its vendors with instant detection alerts.
Prevent third-party data breaches with UpGuard. Start your free 7-day trial today.
5. Track Ongoing Vendor Performance
Finance companies manage an extensive portfolio of high-risk vendors. New threats and vulnerabilities emerge daily, and vendor relationships change over time. Security teams need up-to-date security metrics for effective vendor risk mitigation. Maintaining constant visibility over vendors’ security postures is near impossible across an evergrowing inventory.
An effective vendor risk management solution, like UpGuard, starts managing risks instantly with real-time vendor security ratings, continuous monitoring and risk alerting, and executive reporting for tracking vendor performance over time.