What Constitutes a Good Third-Party Risk Management Policy?

Anwita

Anwita

Apr 05, 2024

Third-Party Risk Management Policy

In a recent Gartner survey, 84% of the respondents (who were risk committee members) claimed that third-party risk gaps highly disrupted their business operations. 

Any organization that relies on third-party vendors for critical business functions should develop and maintain an effective Third-Party Risk Management policy. A strong third-party management policy can go a long way in helping you develop the baseline to minimize the probability of security incidents and business disruptions. 

Let’s dive into what to include in a TPRM policy, the best practices to create one, and its importance. 

What is a third-party risk management policy?

A third-party risk management policy is a documented set of guidelines and practices for organizations to manage, implement, and minimize security threats from vendors, service providers, or business partners. 

Importance of a third-party risk management

Partnering with vendors and service providers is critical to business growth but comes with its own share of compromises. Sharing sensitive information with individuals outside your organization opens the door to unprecedented risks that can make you vulnerable to a range of threats. Comprehensive third-party risk management enables organizations to manage risk profiles and ensure business continuity while collaborating with others. It helps you calculate the risks associated with partnering with a service provider.

Creating a Third-Party Risk Management (TPRM) Policy Template

A robust TPRM policy should cover all the aspects of a vendor lifecycle via standardized practices, right from onboarding to the offboarding stage. 

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These are the main aspects that a well-rounded TPRM policy needs to cover: 

  1. Purpose: Describe why you need this policy, how it protects sensitive information, and what risk management entails. 
  2. Scope: List the stakeholders and concerned parties involved. Mention the assets and systems it covers. 
  3. Policy Statement: Describe your approach and objectives of sharing data with third parties. 
  4. Vendor management: States your organization’s approach to risk management. Entails risk identification process, diligence process, lists agreements, monitoring assets, and mitigation techniques.
  5. Responsibilities: Mention the key role involved in implementing the policy and ensuring that the stakeholders follow it.
  6. Compliance and Review: Mention how often your organization plans to review the contents of the policy. 

Download our third-party risk management policy PDF.

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What does a third-party risk management policy entail?

Your third-party risk management policy’s key components must ensure comprehensive protection against external threats. Let’s dive in to discover these components that help organizations identify, assess, and mitigate risks posed by vendors and partners. 

Roles and responsibilities

Risk management is a shared responsibility that includes all internal company functions including senior members and external stakeholders. Outlining the roles and responsibilities helps to ensure accountability, maintains transparency, and fosters responsibility in individuals to execute expectations. 

Your TPRM policy should outline the roles of the board of directors, senior management, legal consultants, engineers, IT teams, and security administrators. To ensure clarity, cover the following pointers: 

  • Include definitions of key roles mentioned and the responsibilities associated with each deliverable. This should address authority levels, scope, decision-making powers, and supervisory obligations.
  • Lay out a  reporting tree structure that helps regulate information flow within the organization
  • Define goals, expectations, and objectives using KPIs (key performance indicators) from assigned roles

Establish risk tolerance levels

Addressing risks isn’t simple; it demands resources and time. Businesses set risk tolerance levels based on their goals and existing controls to determine if a partnership is actually worth pursuing.

One way to evaluate risks is by thoroughly reviewing the project documentation. Check for consistency and accuracy- a lack of which usually indicates risks. Review documents like procurement plans, cost estimates, project charters, and the security controls already in place. 

Broadly speaking, here are three types of risk tolerance levels: 

  • High tolerance: Also called high-risk tolerance, where the organization is willing to compromise its security for better performance
  • Moderate tolerance: These organizations are willing to compromise some strategic risks. This is a balanced approach between risks and operational stability.
  • Low tolerance: Organizations with low tolerance prioritize their budget above performance. They usually have multiple compliance obligations and a strong security posture.

Threat mapping strategy

First, you need to assess each third-party vendor’s threats based on their data access and potential loss impact. Now, you can use this assessment to gauge if a partnership aligns with your risk appetite. 

Then, create thorough guidelines outlining how your organization evaluates third-party risks, including tools and steps for each role involved in risk assessment.

Your TPRM policy should answer questions like: 

  • What type of data can the vendor access? It should be specified whether these are trade secrets, healthcare-related Protected Health Information (PHI), financial data, and any other sensitive data 
  • Does the vendor have appropriate and adequate security measures and controls to mitigate threats?
  • Does the vendor have sufficient remediation controls or measures to ensure business continuity if a breach occurs?
  • Has the vendor undergone security compliance training or audits depending on the type of data they process, access, and manage?

Monitor risks

Your TPRM policy template should mention how you plan to ensure your vendor maintains continuous compliance with regulatory requirements. If your business must comply with more than one framework, you may need to create more than one policy, especially if the control requirements are not the same. 

Also read: How to implement Third Party Risk Management Framework 

Ideally, this entails conducting vendor reviews and checking their audit report when necessary. Include the tools, process, and frequency to conduct monitoring. Include the steps to take if the risk evaluation process surfaces any gaps. 

Security tip: You can use widely accepted and pre-built standards like the NIST risk management framework or ISO/IEC 27036 (Information security for supplier relationships) to ensure industry-grade compliance.

Evaluate compatible security frameworks 

While drafting your TPRM policy, consider widely accepted security frameworks based on your business obligations.

For example, if you process PHI (protected health information), your vendor should be HIPAA compliant. If you process PII (personally identifiable information) of citizens residing in the European Union, the vendor must comply with GDPR

It is also critical to understand the nuances of your regulatory framework’s data-sharing requirements. For example, GDPR lists several requirements for sharing and transferring data based on specific circumstances. Similarly, HIPAA lists several exceptions on sharing patient health data with third parties. 

Your policies should detail the type of information shared with the vendors, when it is shared, how much is shared, exceptions if any, and what controls you want to implement to prevent intentional or accidental data leakage.

Your one-stop vendor risk policy control center

Writing policies from scratch is tedious, error-prone, and time-consuming. 

With Sprinto, you can roll out vendor risk management policies and document acknowledgment from a single dashboard. 

Sprinto offers ready-to-roll customizable policy templates that you can edit based on your risk levels, existing vendor contracts, history of security breaches, and residual risk, among other risk factors.  The platform’s end-to-end vendor risk management solution helps you launch a risk program that is customized to align with your existing risk tolerance.  

FAQs

What are the key elements of third-party risk management?

The key elements of third-party risk management service level agreement are due diligence, onboarding, maintenance, ongoing monitoring, offboarding, and risk management policies. 

What are fourth-party risks?

Fourth-party risks are the operational or cyber risks introduced by the third-party vendors of your third-party vendors. Your vendor risk assessment policy should also include these. 

What is an example of a third-party security management standard?

A good example of a third party security management standard is ISO/IEC 27036-1:2021 (Cybersecurity — Supplier relationships). It helps acquirers and suppliers assess and treat supplier risks.  

What are the types of risks associated with third-party relationships?

Compliance risks, financial risks, operational risks, reputational risks, cybersecurity, supplier dependency risks, strategic risks, and geopolitical risks are some examples. 

Anwita

Anwita

Anwita is a cybersecurity enthusiast and veteran blogger all rolled into one. Her love for everything cybersecurity started her journey into the world compliance. With multiple certifications on cybersecurity under her belt, she aims to simplify complex security related topics for all audiences. She loves to read nonfiction, listen to progressive rock, and watches sitcoms on the weekends.

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