Fourth-party risk management is the process of identifying, assessing, and mitigating the cybersecurity risks posed by the vendors of your third-party vendors (your vendor’s vendors). With digital transformation compressing the boundaries between IT ecosystems, any of your vendors could be transformed from trusted suppliers to critical data breach attack vectors if they’re compromised.
While the importance of managing third-party security risks is now widely understood in the cybersecurity industry, few organizations consider the impact of fourth-party risks.
This post outlines a framework for implementing a fourth-party risk management program to protect your data from this overlooked attack surface region.
Why is Fouth-Party Risk Management Important?
Fourth-party risk management is important because a compromised fourth-party vendor could result in your organization suffering a data breach.
To understand the pathway that makes these events possible, consider a scenario where your company partners with an online transaction processor. This platform might, in turn, outsource all of its credit card processing to its own third party (your fourth party).
If this credit card processor has insufficient security measures in place, cybercriminals could exploit them, resulting in the transaction processor’s sensitive data also being breached.
Because your business also shares sensitive internal information with the transaction processor to support its services, when they get compromised, your business also gets breached.
Digital transformation has an undesirable and unavoidable effect of combining attack surfaces with every established vendor relationship. Now, not only do the vulnerabilities of your third-party vendors impact your security posture, but your fourth-party risks also play a critical role in influencing your risk appetite.
Data breach protection initiatives are incomplete unless third-party and fourth-party risks are addressed in Vendor Risk Management programs.
Difference Between Third-Party Risk Management and Fouth-Party Risk Management
While third-party risk management focuses on the security risks posed by your direct vendors, fourth-party risk management extends this scrutiny to the vendors' partners. Because of a lack of a direct business relationship with your fourth-party vendors, external monitoring solutions, such as attack surface monitoring tools and Vendor Risk Management platforms, become essential in filling the visibility gaps caused by these offset relationships.
3-Pillar Framework for Implementing FPRM
It’s important to understand that, like TPRM, FPRM isn’t a standalone cybersecurity initiative. It. should integrate seamlessly with your existing cybersecurity program. To learn how these integrations should work, refer to this post.
Follow this framework to expand your cybersecurity program to include fourth-party risk management.
1. Identify all Critical Fourth-Party Vendors
With the average organization partnering with 11 third-party vendors, mapping your sensitive data flow across this network is a considerable effort. But when you zoom in further and consider the network of fourth parties branching off each third-party node, the process becomes a logistical nightmare.
Thankfully, a fourth-party risk management program doesn’t require all fourth parties to be monitored equally. The principle of prioritization that characterizes efficient third-party risk management programs also applies to an FPRM.
In third-party risk management programs (also referred to as Vendor Risk Management programs), vendors are tiered so that critical vendors - those that process a higher degree of sensitive data, are prioritized in risk mitigation efforts.
The first step to establishing an FPRM is to identify all of your critical fouth-parties. Criticality isn’t necessarily only determined by the degree of sensitive data being processed - though this should be a primary determining metric. Criticality can also be influenced by the degree of the potential impact on your business operations, should a vendor’s own vendor be forced offline - either because of a cyber attack or any other form of business disruption.
Identifying your critical vendors is still a considerable hurdle that needs to be overcome. The easiest way to do this is to ask those that know your fourth parties better than you do - your third-party vendors. Risk assessments or security questionnaires are the ideal tools to use. Because an industry-standard fourth-party risk questionnaire doesn’t exist, you will generate a more accurate reflection of each fourth-party relationship by custom-designing a security questionnaire for this purpose.
Custom questionnaire builders, such as the one offered on the UpGuard platform, allow risk management teams either customize existing regulatory-standard questionnaires or build completely bespoke designs from a blank canvas.
See the video below for an overview of UpGuard’s questionnaire builder.
Here are some questions to ask to help you gauge the criticality of each fourth-party vendor:
- Is the vendor critical to your ability to provide my company with your promised products/services?
- Will the vendor suffering an outage activate your business continuity plan?
- Does the service provider have any access to any of my sensitive data? If so, what type of data is shared with them, and what is the reason for this access?
- What security measures are in place to protect my sensitive data if the vendor is compromised?
- Is the vendor’s service availability contingent on your ability to comply with any data security regulations, such as the GDPR?
The responses to these questions will allow you to tier your fourth-party vendors by degree of criticality, making it easy to identify the entities that need to be prioritized in monitoring efforts. As mentioned earlier, your choice of tiering strategy depends on your unique information security requirements. If you’re not sure which metric to use to inform this structure, an objective and widely adopted security posture metric you can use is security ratings.
Though customized security questionnaires will help you map most of your critical fourth-party vendors, there’s still a risk of some being overlooked due to inaccurate or incomplete responses. To fill these gaps, an attack surface monitoring solution should be used in conjunction with security questionnaires.
Vendor Risk Management platforms, like UpGuard, automatically discover all of the fourth-party vendors in your network, helping you track all of the fouth-parties being queried during this phase. After establishing a baseline of your fourth-party relationships, additional fourth-party vendors can be added as you become aware of them to simplify the effort of fourth-party vendor mapping moving forward.
The risk of overlooked attack vectors is always prevalent when point-time assessments, such as security questionnaires, are used alone. This is why the best Vendor Risk Management platforms standardize the augmentation of risk assessments and security rating solutions to produce real-time security posture tracking.
2. Incorporate Fourth-Party Risk Management in Your Due Diligence Processes
After identifying all of your current critical fourth-party service providers, new fourth-party vendor discovery should be added to due diligence processes to simplify this effort moving forward.
This process should involve custom assessments querying each new vendor’s third parties and subcontractors. Here are some questions to help you assess fourth-party vendor risks during the due diligence phase:
- Do you have any contracts with third-party service providers and contractors?
- Will these entities have any access to your data?
- What is the degree of sensitivity of all data being accessed?
- Will any of your third-party contracts process data overseas?
- What is the degree of sensitivity of all outsourced data processing?
- What due diligence have you performed with each of your third-party contracts?
- What concentration risks have you discovered from your third-party relationship, and what is your process of discovering these risks?
- How many of these risks were remediated?
- How do you measure the success of each remediation?
Some security risk assessments that can be used to assess a fourth-party vendor's security posture include:
- Vendor security questionnaires.
- Penetration testing.
- Security audits.
- Compliance assessments.
- Statement on Standards for Attestation Engagements (SSAE 18).
- Security certifications, such as ISO 27001 or SOC 2.
3. Continuously Monitor Critical Fourth-Party Vendors
With all of your critical fourth-party vendors grouped separately and new fourth-party vendor discovery embedded in your due diligence process, the groundwork for a fourth-party risk management program has been laid. Now, the focus is on ensuring your hard work doesn’t go undone by monitoring your critical fourth-party vendors for emerging security risks.
Continuous monitoring is the third stage of this risk management lifecycle, leading to a cyclical effort of improving fourth-party security risk resilience.
Newly discovered risks from monitoring efforts are scrutinized in greater detail with risk assessments that inform the design of targeted remediation responses. The efficacy of these remediation efforts, and the emergence of new risks, are then monitored, and the cycle continues. With each turn of the cycle, the fourth-party risk management program becomes more optimized and better equipped to discover, remediate and manage fourth-party risks.
Because there’s no clear line of communication between your risk management teams and your fourth-party vendors, monitoring the fourth-party attack surface shouldn’t only fall on your shoulders. Your third-party vendors should be encouraged to take ownership of their vendor risks by implementing a VRM program with attack surface monitoring capabilities.
Before trusting that your vendors will effectively monitor their third-party suppliers, it’s essential first to confirm two things:
- That they have a Vendor Risk Management program in place.
- This VRM program is capable of effectively monitoring emerging third-party cybersecurity risks.
Both of these queries can be confirmed with vendor risk assessments.
If your vendors aren’t yet addressing the potential risks of their third parties, UpGuard is an excellent solution to recommend to them.
Encouraging your vendors to improve their supply chain security will reduce your risk of suffering third-party breaches.
Types of Fourth-Party Risks You Should be Monitoring
Some common fourth-party risks to monitor include:
- Data breaches and data leaks: Unauthorized access to sensitive data can have significant financial, legal, and reputational consequences for your organization. Data leaks are an important attack vector to monitor since they expedite the data breach process.
Read this whitepaper to learn how to implement a resilient data breach protection program.
- Inadequate access controls: Poorly managed access controls can expose your organization's data to unauthorized users, increasing the likelihood of data breaches.
- Insufficient encryption and security measures: Weak or outdated security measures can make it easier for cybercriminals to access sensitive information.
- Non-compliance with regulations: Failure to comply with applicable regulations, such as GDPR or HIPAA, can result in fines, penalties, and reputational damage.
- Software vulnerabilities and outdated systems: Unpatched vulnerabilities and outdated systems can expose your organization to a wide range of cybersecurity threats.
- Insider threats and human errors: Insider threats, intentional or unintentional, can compromise the security of your organization's data and systems.
How UpGuard Can Help
The UpGuard platform is a complete end-to-end Vendor Risk Management solution that addresses the entire lifecycle of Vendor Risk Management - from due diligence, risk assessment, remediation management, and continuous monitoring. UpGuard extends its attack surface management capabilities to the fourth-party vendor landscape, allowing you to implement both a third-party and fourth-party risk management program from a single intuitive solution.