Before entering into any partnership, it’s vital to review a vendor’s past conduct and operational methods. This includes examining their track record with other clients, any history of legal issues, and their adherence to ethical standards. In doing so, you gain insight into their reliability and the potential risks they may pose to your brand. It is important to document standards and requirements for all vendors and third party partners to comply with based on their type, category, or access to sensitive information. Common requirements might be audit reports, financial records, or list of subcontractors. Here are some important things to consider when developing the reqiurements for your organization.
1 . Type of Vendor
It is important to understand that all vendors and third parties are not equal. Some may have more direct access to sensitive information while others may provide supporting services. Vendor Risk Management can help to identify and categorize the types of vendors you may encounter to determine the level of due diligence required.
Cloud hosting providers are often a common example becuase so many depend on their infrastructure in today’s world. It is important that we not become naive and fall into the trap of saying: “surely they are secure and compliant with today’s best practices”. It is important to understand exactly what services they are really providing and what risk is being transferred to them. This will help determine what due diligence is required and later what performance metrics need to be monitored.
2. Jurisdiction – Due Diligence with International Third Parties
It is common to see companies utilize international companies to supplement some part of their business. It may be cost effective to use off-shore development companies to offload heavy coding tasks. In these cases, it is very important to understand what kind of due diligence considerations need to be made when selecting these vendors. If that country has different regulations than the jurisdiction that you reside in, you must understand the differences and look for red flags that may present an elevation in risk. Security questoinnaires and evidence collection are often used to determine the security maturity of the organization engaging with them in business.
3. Reputational Review
Research the vendor’s reputation within the industry and assess their stability. A vendor with a solid reputation is more likely to invest in robust security measures and maintain a long-term commitment to their clients. It is not uncommon to do a few internet searches on the vendor to see if there is any news from their past. Ask them to disclose any civil, criminal and regulatory matters to identify a history of issues that may present risk factors.
4. Financial Review
When dealing with vendors, it is imperative to assess their financial stability to guarantee they can fulfill their commitments and deliver the products or services they have promised. Therefore, it is essential to conduct thorough due diligence to evaluate their financial stability before entering into any contractual agreements.
5. Compliance Reviews
Ensure that the vendor complies with relevant regulatory requirements, such as GDPR, HIPAA, or industry-specific regulations. Assess the vendor’s track record in adhering to these regulations and their ability to provide necessary compliance documentation.
6. Information Security Review
Evaluate the vendor’s security controls and practices to ensure they align with your organization’s security standards. This includes assessing their approach to data encryption, access controls, network security, and incident response procedures.
7. Subcontractors and Dependencies
When assessing vendors and third-party partnerships, it is important to broaden our investigation beyond the main vendor to encompass subcontractors and dependencies. In today’s interconnected business environment, numerous vendors rely on subcontractors or have complicated supply chain dependencies to offer their services. Neglecting to consider these subcontractors and dependencies can leave our organization open to a plethora of risks, particularly in terms of cybersecurity. Consider supply chain risks and the lack of oversight when requesting the lists of subcontractors from a potential vendor.
8. Contractual Agreements
Review contractual agreements carefully to ensure they include adequate provisions related to security, data protection, and compliance. Clarify responsibilities and liabilities in the event of a security incident or data breach.
9. Business Continuity and Disaster Recovery
Depending on the type of vendor, it may be important to assess the vendor’s business continuity and disaster recovery plans to ensure they can maintain operations and protect your data in the face of unforeseen disruptions or emergencies. Verify the resilience of their infrastructure and their ability to recover data in a timely manner.
10. Ongoing Monitoring and Review
It is important to establish mechanisms for ongoing monitoring and review of vendor security posture throughout the engagement. This involves regularly assessing the effectiveness of the vendor’s security controls, evaluating any changes in their risk profile, and addressing any emerging concerns promptly. Therefore, it is crucial to identify these requirements during due diligence and clarify expectations before engaging with the vendor.
It is also important to consider establishing the right to audit, depending on the type of vendor. This helps to provide transparency and allows organizations to ensure that their third-party vendors are following the agreed-upon security protocols. By having the right to audit, companies can address any potential risks or vulnerabilities before they turn into major issues.
Conclusion
In conclusion, vendor due diligence is a critical aspect of managing cybersecurity risk in today’s interconnected business environment. By considering these top 10 factors, organizations can effectively assess vendor security posture, mitigate potential risks, and foster secure and trusted partnerships with vendors. Remember, proactive due diligence today can prevent costly security incidents tomorrow.