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Third-Party Vendors and Cyber Security

Updated on March 16, 2017

Third-party vendors, especially those performing information-related services, are oftentimes the weakest point in a company’s defense system against cyber attacks. It is ill-advised to contract a third party without a thorough background investigation. This article will give you advice on how to conduct a background check and negotiate an agreement that will reduce risk.

Evaluation

When choosing a third-party vendor, you should consider many security issues. The thoroughness of a background check will depend on the service the vendor will provide to your company – be particularly meticulous if the third party will have access to sensitive information. Here are some aspects you may want to consider:

  • Audits and other financial records
  • Experience and ability
  • Business reputation
  • Span of business operations
  • Qualifications and expertise of the company’s principals
  • Strategies and goals
  • Existence of any complaints or litigations
  • Use of other parties or contractors
  • Scope of internal control
  • Systems and data security
  • Knowledge of consumer protection and civil rights laws
  • Adequacy of managing information systems
  • Insurance coverage
  • Websites
  • Scope of the vendor’s responsibilities
  • Country in which the vendor is based

During the investigation address the following issues with the vendor:

  • How the firm may pose a risk in terms of access to information
  • Ask for background-check forms
  • Ask for references related to the service the vendor is going to perform in your company
  • Check their history of breaches. If there were any, who was at fault?
  • If any breaches occurred, what lessons have been learnt by the vendor?
  • Were employees ever reinvestigated?

Remember to do some fact checking yourself in case the vendor doesn’t disclose all details. Ask for documentation to make sure they’re complying with regulations.

Unfortunately, background checks are expensive and time-consuming. In addition, the vendor may just leave if you press them too hard. Remember that not all third-party vendors require the same level of vetting – it all depends on what kind of information they’ll have access to. Despite the inconveniences of proper vetting, it is crucial for your company’s security; you don’t want to end up contracting fraudulent or even non-existent third parties. Aim to balance out the costs and security considerations.

Risk-Reinforced Service Level Agreements

A risk-reinforced service level agreement will give you a greater level of security when it comes to contracting third-party vendors. Here are some suggestions as to what should be included in the agreement:

  1. Information security. Make sure that the vendor understands the importance of information security, which takes into account technical, physical, and administrative security. You may want to ask for regular written reports concerning the vendor’s internal information security policies.
  2. Information privacy. Information privacy relates to how regulated information may be used and by whom. The Generally Accepted Privacy Principles (GAPP) may give you basic guidelines for developing this point. Regulated information includes: information on medical or health conditions, financial information, racial or ethnic origin, political opinions, religious or philosophical believes, trade union membership, sexual preference, information related to offenses of criminal convictions. GAPP also stipulates that some unregulated data, such as intellectual property and trade secrets, must be kept confidential. Make sure that the vendor understands your information privacy policies and is obliged to follow them.
  3. Threat and risk analysis. Oblige the vendor to perform risk assessments, which should include a rigorous vetting of employees and looking into the history of security breaches. The vendor should disclose to your company any reported and unreported breaches .
  4. Regulatory and industry compliance. Compliance with regulations is the lowest possible level of security the vendor should meet.
  5. Internal audit. Negotiate as much access to the vendor’s audit as possible.
  6. Foreign corrupt practices management. Measure the level of corruption in the country in which the vendor is based. Make sure that the vendor has an anticorruption program in place and evaluate its effectiveness – corruption may lead to reputation damage.
  7. Enforcement. Should the vendor fail to comply with any of the terms agreed by both parties, consequences proportionate to the event should follow. A serious security violation should give you the right to terminate the agreement.


Sources:

Ulsch, N MacDonnell, “Cyber Threat! How to Manage the Growing Risk of Cyber Attacks”, Wiley, 2014


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