Fourth-party risk management: What do you need to know?

As organisations rely more and more on third parties to complete certain operational activities, a business’ vendors often contract their own suppliers to provide specific services, creating an unprecedentedly larger, more fragmented supply chain.

While you may not work directly with these fourth-party organisations, they play an integral role in your vendor security.

Studies show that the number of supply chain attacks has increased since the COVID-19 pandemic struck, with cyber breaches increasing by over 17% in the past year.

With the supply chain expanding, the fact is that it’s becoming more difficult for organisations to secure every vulnerability, providing cybercriminals with more opportunities to enter the system. 

To protect supply chains from cyberattacks today, organisations need to be actively involved in proactive fourth-party security.

Why is fourth-party risk management so crucial?

Fourth-party risk management acknowledges that your organisation inherits the risk of your expanded supply chain; this necessitates a far-reaching security strategy that safeguards your data and other assets from uncharted risks and vulnerabilities. 

If fourth parties suffer a data breach, it puts their contractor (your vendor) at risk, jeopardising your data before too long. Today, cybercriminals only need to access an organisation’s security systems to compromise its entire supply chain, as was demonstrated by the Kaseya ransomware attacks that compromised over 1,500 companies.

Moreover, poor vendor security management can compromise business efficiency too. For example, if one of your vendors has to shut down operations temporarily due to a data breach through one of their subcontractors, this can reverberate across your operations. 

More concerning is the threat to your data. Certain fourth-party organisations work with your data, and a cyber breach could jeopardise this information, even if you take every other measure to secure your infrastructure. 

It’s also likely that some of these parties may be violating regulations like the GDPR and PCI-DSS, which could lead to eye-watering fines amounting to millions of pounds. 

Taking a proactive approach to fourth-party security, therefore, is crucial to reduce cyberattacks, meet compliance standards, stabilise your operations, and improve confidence across key stakeholders. 

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What is the best way to manage fourth-party risks? 

Improving vendor security often begins with creating a powerful security incident plan.

Here, the first step to manage fourth-party security is to identify the most important parties; determine who they are, what they do, and what services they provide your third-party vendors. This will help you identify your most important subcontractors; a cyber breach within their operations can expose you to significant risk. 

You must also determine mutual fourth-party organisations—firms that are working with some of your vendors. Knowing your critical fourth-party vendors, their function, and the type of data they access is critical for forming a responsive security incident plan. 

Your third-party vendors should also provide comprehensive information on their subcontractors. After the SSAE-18 reports passed in 2017, third-party vendors are obliged to inform you about their most important vendors.  

Additionally, they need to undertake security measures of their own, including vendor security due diligence to ensure they are working with diligent partners and developing their own third-party risk management policies to ensure they aren’t vulnerable across various touchpoints.

Monitoring and reporting across fourth-party vendors is also a critical part of your risk management plan. Your IT team should gather information such as each fourth party’s security rating, the number of products they use, and any vendors they may be working with.

Because there are thousands of vendors operating in most modern supply chains, gathering reports on each vendor can prove to be a frustrating, lengthy experience, especially if you’re working with traditional vendor risk monitoring tools. 

A practical alternative to this is to focus on concentration risk. This highlights your most common fourth parties, including their security ratings, products used, and other vendors working with them, helping your security teams become more precise and effective across their strategies. 

Create a more transparent and secure vendor environment

With the supply chain continuing to grow, devising a fourth-party risk management programme is critical, especially if you are interested in enhancing the resilience of your cybersecurity posture

Most organisations today continue to use dated security tools, which may prove limited when monitoring fourth-party vendors. Advanced security tools can help you take a more proactive approach to risk monitoring and mitigation, giving you greater control over granular aspects—and fourth-party vendors—of your supply chain.