Third Party Security: Building Your Vendor Risk Program in 2025

Are you confident your vendors can withstand a cyber attack? If not, you should continuously evaluate your third-party security, especially if you’re sharing sensitive customer data across your vendor ecosystem.

In this post, we break down the concepts of third-party security and provide an actionable roadmap for effectively strengthening this essential branch of cybersecurity across your organization.

What is third-party security?

Third-party security (also known as third-party risk management) refers to the practices and safeguards an organization uses to protect itself when working with external vendors, partners, suppliers, or service providers.

These external parties often have access to internal systems, data, or customer information, so if they fall victim to a cyber attack, they become direct gateways for attackers to access your sensitive data and critical infrastructure.

The scope of external vendors and partners in a modern organization is vast and can include:

• Technology vendors: Cloud hosting providers, marketing tools, cybersecurity solution providers, etc.
• Business process outsourcers: Companies handling functions like customer support, human resources, payroll, or marketing.
• Software as a service (SaaS) providers: For CRM, HR, marketing automation, etc.
• Infrastructure as a service (IaaS) and platform as a service (PaaS) providers: For cloud computing and storage.
• Managed service providers (MSPs): For IT support, security operations, etc.
• Consultants and contractors: With access to sensitive information or internal systems.
• Data processors: Handling customer data or other critical information.
• Supply chain partners: Manufacturers, distributors, and logistics providers who may have digital connections or access to sensitive information.
• Consultants and contractors: Individuals or firms with temporary or ongoing access to internal resources.

There are four primary categories of third-party security risks:

• Cybersecurity risk: The potential of a third-party security risk being exploited, resulting in unauthorized access to your network or theft of sensitive data that a third party was entrusted with.
• Operational risk: The possibility of service disruptions if a critical supplier fails or falls victim to a cyber attack.
• Compliance risk: The potential for vendors handling sensitive data to jeopardize your legal and regulatory compliance through failure to follow required standards (e.g., a vendor's negligence with healthcare data could cause your organization to violate HIPAA).
• Reputational risk: The possibility that a breach originating from a third party will damage your reputation and impact customer trust, as clients may not distinguish whether a security incident was your fault or that of a third party.
  
  

A third-party security program aims to identify and control the specific risks across these categories, prioritizing those with the greatest potential negative impact on an organization. It involves vetting the security of external parties, setting expectations for how they protect your data, and continuously monitoring their posture. 

Why third-party security matters for organizations

Third-party security has become a board-level concern because failures in this area of risk management can have wide-ranging consequences, ranging from regulatory violations to reputational damage and financial loss.

Here's a breakdown of the primary reasons why third-party security is so critical today:

• Legal liabilities: Organizations can be held liable for breaches originating from their vendors, especially if proper due diligence is lacking. This can result in lawsuits from affected customers or partners.
• Regulatory fines: Numerous regulations mandate the protection of sensitive data. A vendor-related breach can lead to hefty fines for noncompliance with laws like GDPR, HIPAA, CCPA, and others.
• Reputational damage: News of a data breach, regardless of origin, can erode customer trust and damage the organization's brand image. Rebuilding this trust can be a lengthy and costly process.
• Financial losses: Beyond fines and legal fees, breaches can lead to direct financial losses from incident response, business disruption, and loss of competitive advantage

Industry-specific requirements further underscore the importance of third-party security:

• Finance: Financial institutions are heavily regulated (e.g., GLBA, PCI DSS, NYDFS Cybersecurity Regulation) and must ensure their vendors comply with stringent security standards to protect financial data and prevent fraud.
• Healthcare: Healthcare organizations must adhere to HIPAA regulations, which require safeguarding protected health information (PHI), even when handled by third-party business associates.
• Government: Public sector organizations and their contractors often face strict security mandates to protect national security interests and citizen data.

Even if your company has strong internal defenses, a less secure vendor can become an easy backdoor for attackers. The security of your business is only as strong as the security of its third parties.

Another reason third-party security is such a critical consideration is that poor vendor security significantly impacts an organization's security posture. One study found that up to 51% of breaches resulted from poor vendor security.

A rapid adoption of AI technology amongst vendors is making third-party risks more complicated and challenging to detect, which will likely increase the trend of security incidents originating from the vendor network.

If you don't start sharpening your third-party security practices today, it's only a matter of time before you become another third-party breach statistic.

5 Steps to strengthen your third-party security

Achieving strong third-party security requires a systematic approach. Below are five key steps organizations should take to identify, assess, and mitigate risks from vendors and partners throughout the relationship lifecycle. Each step builds on the previous to create a comprehensive third-party risk management (TPRM) program.

Step 1: Perform risk classification

Not all vendors pose the same level of risk. Security teams must categorize vendors based on the sensitivity of the data they access or process and the criticality of their services. 

By performing risk classification (also called vendor tiering), security teams understand where to focus monitoring efforts and which vendors need to be prioritized when conducting vendor risk assessments.

Key factors determining a vendor's risk classification include:

• Data access: What type of data will the vendor access, store, or transmit (e.g., personally identifiable information (PII), protected health information (PHI), financial data, intellectual property)?
• Service criticality: How critical is the service provided by the vendor to your core business operations? (e.g., Would an outage of this vendor's service cause a significant operational impact?)
• Network interaction: What level of access will the vendor have to your internal network and systems? (e.g., Will they require direct network connections, API access, or isolated system access?)
• Regulatory compliance: Could a breach or operational failure involving this vendor result in non-compliance with applicable laws or industry regulations? (e.g., Vendors handling regulated data such as finance, healthcare, or personal information inherently carry a higher compliance risk.)
• Vendor security maturity: What is the assessed state of the vendor’s cybersecurity posture and practices? (e.g., Consider if the vendor lacks relevant security certifications, has a documented history of breaches, or demonstrates weak security controls, which may elevate their risk level.)
• Operational dependence: How vital is the vendor's service to your essential business functions? (e.g., If a failure by this vendor could halt your primary business activities, such as a core cloud infrastructure provider, they should be treated as high-risk, whereas non-critical services like catering would be lower risk.)

By considering each of these risk factors, determine which criticality tier a vendor should be assigned to. There are typically three-tier options:

• Tier 1 = highest risk/critical vendors,
• Tier 2 = medium risk
• Tier 3 = low risk

Refer to the following vendor risk tiering model as a guide for your vendor classification strategy:

Tip: Document the criteria determining each vendor's tier and review it regularly (at least annually or whenever a vendor’s engagement changes). 

Regularly review your vendor classification process to ensure it continuously adapts to emerging categories of vendor security risks, such as the recently introduced category of AI-related third-party security threats.

Step 2: Establish onboarding controls

Once you’ve identified a vendor’s risk tier, the next step is to enforce strong security controls during onboarding. But before controls can be established, you need to understand a vendor's baseline level of control alignment. This due diligence process typically involves reviewing compliance documentation and security questionnaires.

(a) Review of compliance and certifications: 

Ask for evidence of the vendor’s compliance with relevant security frameworks or standards, such as:

• SOC 2 (System and Organization Controls 2): Reports on controls related to security, availability, processing integrity, confidentiality, or privacy.
• ISO 27001: An international standard for information security management systems (ISMS).
• NIST Cybersecurity Framework: A voluntary framework comprising standards, guidelines, and best practices to manage cybersecurity risk.
• PCI DSS: For vendors handling cardholder data.
• HIPAA: For vendors handling PHI.

Compare the vendor's level of alignment against your preferred benchmarks. To significantly speed up this process, consider using an AI-powered TPRM solution like UpGuard to uncover vendor control gaps in minutes.

Learn how UpGuard is reimagining TPRM >

(b) Initial Security Questionnaires: 

When limited evidence about a vendor's security standards is available, knowledge gaps about the vendor's security controls and policies will need to be filled with a standardized questionnaire. Popular options include ISO 27001, SIG Lite, CAIQ, or a custom questionnaire. 

To save time, it's helpful if the vendor proactively demonstrates their security efforts by hosting completed questionnaires and other relevant cybersecurity documentation on a public trust page. 

At this point, after reviewing a vendor's level of alignment with relevant frameworks and their questionnaire responses, you might discover that a vendor should be upgraded to a higher criticality tier.

For example, a vendor initially thought to be handling only anonymized marketing data (and thus tiered as low criticality) might be upgraded to high criticality if their SIG Lite responses reveal they process and store sensitive customer financial information to support their service, a fact that may not have been made clear during initial discussions.

If this happens, return to the previous step (Perform risk classification) and adjust their criticality rating. Then, modify your tiering model to account for such events to optimize this workflow and prevent doubling back in the future. 

For example, you could refine your initial vendor intake process to include a mandatory, detailed question like:

Will your service or personnel access, store, process, or transmit any of the following data types:

• ‍[list specific sensitive data types like financial records, PII, PHI, intellectual property] ‍

If the vendor answers 'yes' to handling any pre-defined sensitive data, your model could automatically assign them to a higher risk tier or trigger an immediate request for a more comprehensive security questionnaire before deciding on a classification.

This process of evaluating a vendor's security controls may be time-consuming, but once completed, the security data gathered from each vendor will form the basis of their risk assessments moving forward. 

Now that you understand each vendor’s security baseline, identify all controls that need to be enforced to ensure the vendor’s risk exposure falls within your risk appetite limits.

The process of evaluating third-party risks and their severity will depend on your choice of risk measurement methodology. For an overview, read our guide on how to calculate your third-party risk appetite.

For new vendors with higher levels of inherent risk exposures (level of overall risk before security control implementation), a decision will need to be made about whether enforcing controls to suppress risk levels within risk tolerance limits is worth the effort.

Making such a decision should involve the input of the compliance team and the individual proposing the vendor, who should be expected to offer a compelling case for onboarding such a high-risk vendor.

A compelling case for onboarding a vendor demonstrates support for achieving key business objectives; the greater the potential financial benefits, the more compelling the case.

Every vendor, regardless of their risk exposure, should only be onboarded if they are absolutely necessary for achieving key business objectives. Keeping your vendor network lean is a best cybersecurity practice as it keeps your external attack surface (the total number of possible entry points for cybercriminals) minimal.

Step 3: Outline Contractual Requirements

The outcome of onboarding due diligence completed in the previous step sets the security requirements the vendor must adhere to from day one. This step involves translating your risk requirements into legal language so that third parties are contractually obligated to uphold security standards. 

Security and legal teams should collaborate to ensure agreements include robust cybersecurity provisions that will ensure your organization remains protected in the event of a security incident. Pay special attention to clauses covering:

• Data protection and security standards: The contract should require the vendor to follow appropriate security measures to protect your data. This may reference specific standards (e.g., “Vendor shall maintain an information security program in accordance with ISO 27001 or equivalent”) and include commitments like encrypting data in transit and at rest, regular patching, employee security training, etc. 
• Breach notification: Include a breach notification clause that mandates the vendor to notify you within a defined timeframe if they experience any security incident or data breach affecting your data. The timeframe is often 24-72 hours (depending on regulatory requirements). Early notification is critical to fulfill your obligations (e.g.,, you might need to inform customers or regulators within a specific window). 
• Right to audit and assess: It’s wise to include a right-to-audit clause that grants your organization the ability to audit or request evidence of the vendor’s compliance with the agreed security controls. This might involve on-site audits, review of penetration test reports or vulnerability scans, or other assessments, usually with some notice given to the vendor. Even if you don’t exercise this right frequently, having it in the contract ensures the vendor remains aware that their security claims can be verified.
• Service level agreements (SLAs): For operationally critical vendors, define SLAs around availability, recovery time objectives, or support response times to ensure the vendor has a robust business continuity plan in case of cyber incidents. Additionally, include clauses for how quickly the vendor must address any identified security vulnerabilities or compliance issues (e.g., vendor must remediate critical vulnerabilities within 30 days).
• Subcontractor and fourth-party controls: If your vendor uses its own vendors to deliver service, your data might pass through those, so your contract should stipulate that any subcontractors with access to your data are held to the same security standards. You may also want the right to approve or be notified of any critical subcontractors.
• Termination and data return/destruction: The contract should outline what happens when the relationship ends: the vendor must return or securely destroy your data, and confirm such destruction in writing. This ties in with offboarding (discussed later) and ensures no residual exposure after the contract period.

In regulated sectors, many of these clauses are not just best practices but often explicitly required by regulators.

Having these requirements in writing makes them enforceable. It also provides clarity, ensuring each vendor understands exactly what is expected of them in terms of security and the consequences of non-compliance. 

Step 4: Enforce ongoing monitoring

Third-party risk is not static. Continuous monitoring of third parties is essential because vendor security risks always unexpectedly arise. The CrowdStrike incident is a clear example of how easily threats can propagate across the global digital supply chain.

A vendor with a resilient security posture today could become a vulnerable data breach target tomorrow. 

Effective continuous monitoring comprises the following processes:

• Security ratings: Continuously measuring a vendor's security posture in real-time. Security ratings offer objective, data-driven scorecards based on externally observable security factors. Alerts for fluctuations likely indicating dangerous changes to a vendor's risk allow for prompt responses, reducing the likelihood of a vendor falling victim to a cyber attack   ‍
• Continuous vendor assessments: Supplement point-in-time assessments with periodic reviews, especially for high-risk vendors. This may involve reassessing questionnaires, reviewing updated compliance documentation, or conducting targeted security testing.‍
• An incident and news feed: A continuously updated news feed tracking security events impacting your vendors. Vendor Risk Management platforms that include such a feed, such as UpGuard, helped organizations rapidly identify vendors affected by the CrowdStrike incident and respond to the incident efficiently. ‍
• Dark web monitoring: Dark web monitoring helps security teams track instances of an organization's sensitive data appearing on cybercriminal forums on the dark web and chat tools, like Telegram. This capability encourages a proactive approach to cybersecurity, giving security teams as much time as possible to secure vulnerable systems and credentials before the data leaks are used to facilitate a breach.

Step 5: Prepare an offboarding plan

Just as onboarding sets the stage for a secure partnership, offboarding a vendor securely is equally critical. When a contract or partnership with a third party ends, you must immediately shut down all access points to prevent these loose ends from facilitating a data breach.

A well-defined offboarding plan ensures all third-party connections are thoroughly checked and your company's data remains protected after the vendor's services are no longer used.

Key components of a strong offboarding process include:

• Early communication and coordination: Promptly inform all relevant internal teams (IT, security, legal, procurement, business owner) and the vendor about the offboarding. Designate points of contact on both sides to manage the process, ensuring clarity on timelines (e.g., IT for system disconnection) and ongoing obligations (e.g., legal on confidentiality) for a smooth transition.
• Access termination: Systematically revoke all vendor access to systems, data, and facilities. Disable all accounts, credentials (VPN, API keys), and physical access (badges, keys), referencing an inventory of granted access. Conduct multi-layered checks and audits to confirm complete removal and prevent unauthorized entry.
• Data return or deletion: Ensure the vendor returns all company data or securely destroys it according to contractual and regulatory requirements. Obtain written confirmation (e.g., certificate of destruction) and verify that any third parties of the vendor also comply, preventing future data exposure.
• Asset & device recovery: Retrieve all company-owned assets (laptops, tokens) and remove any vendor-installed software, tools, or certificates from your environment. Update any shared credentials to eliminate the vendor's footprint and potential backdoors.
• Knowledge transfer and continuity: Facilitate a smooth transition of ongoing projects, responsibilities, and critical knowledge from the outgoing vendor to internal teams or a new provider. Ensure documentation, reports, and configurations are handed over to prevent operational disruptions or loss of expertise.
• Update documentation and inventory: Immediately update your vendor inventory and all related documentation (e.g., network diagrams, contact lists) to reflect the vendor's "offboarded" status. Record the offboarding completion date and tasks for audit and reference purposes.
• Post-offboarding monitoring: Maintain heightened monitoring of systems for a period after the vendor's departure. Watch for anomalies, such as attempted logins from disabled accounts, to detect any missed revocations or suspicious activity, leveraging existing continuous monitoring solutions.

How to continuously manage third-party risk

To ensure long-term protection against emerging external threats, organizations should continuously manage third-party risk. Here’s how to do that effectively:

• Regularly reassess security controls: Periodically review and update your vendor security requirements (e.g., questionnaires, control criteria) to align with current threats, compliance changes, and best practices like MFA. Reclassify vendors if their risk profile changes (e.g., due to handling more sensitive data or requiring greater system access.
• ‍AI-driven insights and automation: Leverage AI and machine learning to enhance TPRM scalability and proactivity. Use these technologies to rapidly analyze vendor assessments, monitor threat intelligence for vendor impact (e.g., flagging vendors affected by a new vulnerability), and automate repetitive risk management tasks.‍
• Integrate threat intelligence: Incorporate threat intelligence feeds (e.g., from ISACs, commercial services) into your TPRM. Use this information to proactively assess if emerging cyber threats, exploits, or breaches could impact your vendors, enabling preemptive mitigation rather than reactive responses.‍
• Continuous improvement loop: Treat your TPRM program as an ongoing refinement cycle. Conduct post-mortems after vendor incidents, solicit feedback, update processes based on lessons learned and evolving best practices (e.g., from NIST, ISO), and strive for a more mature, predictive, and collaborative approach to risk management.‍
• Use dashboards and metrics: Implement centralized dashboards to aggregate third-party risk data, providing an at-a-glance view of high-risk vendors, review statuses, and outstanding remediations. Track key metrics (e.g., vendors by risk tier, remediation times) to monitor program effectiveness. These metrics should be readily exportable into a cybersecurity report to demonstrate improvements in third-party risk exposure over time to stakeholders.

Frequently asked questions about third-party security

What is third-party access security?

Third-party access security refers to the controls and practices that manage how external vendors and partners connect to your systems or data. Organizations often need to grant network or application access to third parties.

For example, an IT support contractor might need remote desktop access, or a marketing agency might need login credentials to a shared platform. T

hird-party access security aims to minimize the risk of these external access points. This is typically achieved through measures like:

• Privileged access management (PAM): Implement PAM for vendors requiring elevated access to strictly enforce the principle of least privilege, granting only the minimum necessary permissions.
• Network segmentation: Restrict vendor access to specific, isolated network segments relevant to their services. Protect sensitive data further by applying zero-trust principles to these segmented areas, limiting the impact of third-party breaches.
• Multi-factor authentication (MFA): Mandate MFA for all third-party access to add a critical security layer, significantly reducing risk if vendor credentials are compromised.
• Monitor third-party access: Continuously log all vendor system activities (logins, commands, data accessed). Review these logs regularly, comparing against historical data and baselines to detect and investigate anomalies indicating suspicious behavior.

Is first-party security better than third-party security?

It’s not a matter of one being “better” than the other. They are different facets of an overall security strategy. First-party security refers to protecting your organization’s systems, networks, and data (the things under your direct control). 

Third-party security, on the other hand, focuses on managing risks introduced by external entities (vendors, partners, service providers). To achieve an overall resilience security posture, a strong partnership between first-party and third-party security strategies is needed.

Can third parties jeopardize compliance?

Yes. Many regulations (like GDPR, HIPAA, and PCI DSS) extend data protection responsibilities to any third parties that process, store, or transmit sensitive data on behalf of an organization. If a vendor fails to meet these compliance requirements and a breach or violation occurs, your organization can be liable.

Building long-term value through vendor partnerships

A strong third-party security program does more than just manage risk. By ensuring your vendors remain protected against cyber threats, this initiative fosters strong vendor partnerships for long-term strategic advantage.

Setting clear security expectations and collaborating closely with vendors ensures operational stability, enhances regulatory compliance, and significantly reduces the impact of third-party breaches, protecting your most valuable asset, your brand's reputation.