Third-party vendor relationships are often seen as a sign of business growth, but they also open the door to significant cybersecurity risks. Every vendor you bring on board can become a potential entry point for cyber threats. As you grow your partnerships, you must also secure these digital entry points. In other words, organizations must focus on third-party vendor risk management.

Virtually every industry (retail, healthcare, financial service, etc.) relies heavily on third-party vendors to maintain efficient operations. These vendors can range from cloud service providers like Amazon Web Services (AWS) to managed service providers (MSPs) who handle IT infrastructure, to payment processors that manage customer transactions.

Vendor Risk Management: A Growing Challenge

Few organizations can function without third-party vendors. Yet, each vendor relationship can be a potential entry point for cyber threats. Attackers can exploit weaknesses in vendor systems to gain access to the broader supply chain which can lead to breaches, operational disruptions, and financial losses. Effective vendor risk management is necessary, but it’s also difficult because of a lack of visibility into vendor security practices and the complexity of digital supply chains.

One of the most striking examples of vendor-related risk is the CDK Global cyber attack, which impacted car dealerships across the United States. As a software provider for the automotive industry, CDK Global’s vulnerabilities were exploited during the attack, disrupting dealership operations for over two weeks. This resulted in system outages that affected critical functions like inventory management, financing processes, and the security of sensitive customer data, highlighting the importance of robust vendor risk management to protect against such disruptions.

This incident underscores the importance of thoroughly vetting and continuously monitoring third-party vendors. It also highlights how a single vulnerability in a vendor’s system can have far-reaching consequences for businesses that depend on their services.

Best Practices for Vendor Risk Management

To effectively manage vendor risks, organizations must adopt a proactive and comprehensive approach. This requires several key practices:

• Thorough Vendor Assessments
  Before entering into any vendor agreement, conduct a detailed security assessment. Evaluate their security protocols, data protection practices, and incident response plans. It’s essential to understand the vendor’s cybersecurity posture and ensure it aligns with your organization’s security standards.
• Continuous Monitoring
  Cybersecurity is dynamic. One-time assessments are not enough. Continuously monitoring vendor security is a necessity. This includes vulnerability scans, asset inventory to map interconnectivity/interoperability with 3^rd party systems, and performance reviews to ensure ongoing compliance with security requirements.
• Clear Contractual Obligations
  Vendor contracts should be explicit in defining security expectations and responsibilities. Consider including requirements for data encryption, access controls, incident reporting, and regular security updates. Contracts should also outline the process for handling security incidents and data breaches to ensure that vendors are accountable for any lapses.
• Vendor Security Audits
  The only way to verify vendors are adhering to the contractual security practices is through regular security audits. These audits should be part of a broader vendor management framework that includes assessing overall risk profile, regulatory compliance, business continuity, publicly disclosure breaches/exposures, and financial stability.

Industry-Specific Vendor Risk Examples

No industry is exempt from third-party vendor risk management. There are numerous examples of breaches that have occurred in almost every sector. Below are a few examples:

In the retail sector, third-party vendors manage point-of-sale (POS) systems, payment gateways, and supply chain logistics. Retailers trust these vendors to handle customer transactions and manage inventory. However, breaches in these systems can have devastating effects.

Healthcare organizations rely on third-party EHR providers and medical device manufacturers to store and manage patient data. These vendors are responsible for securing sensitive health information in compliance with HIPAA regulations. Because of their outdated infrastructure and the sensitive nature of the data, healthcare is particularly vulnerable to attacks.

In February 2024, a ransomware attack on a prescription processor from UnitedHealth caused a major disruption across the U.S. healthcare system for several weeks. In May, Ascension health system had a ransomware attack that adversely affected emergency care for a number of hospitals.

Financial institutions will work with payment gateways, cloud service providers, and even SaaS platforms for managing transactions and customer data. A breach in any of these systems can result in the theft of sensitive financial information, leading to significant regulatory fines and reputational damage. In a recent industry review, the number of attacks on financial systems in 2024, as compared to 2023, has almost doubled. The two biggest impacts were to: 1) the leak/exposure of confidential data, and 2) disruption of core activities. Additionally, while not the highest volume threat, cryptojacking is a big concern for financial organizations.

Within the financial sector, as well as other industries, cloud security also remains a big concern, due to the shared security responsibilities between the financial institution and cloud infrastructure provider. One of the largest and most public breaches happened in 2019. In this attack, Capital One experienced a massive breach due to misconfigured AWS databases. This breach exposed the personal information of more than 100 million customers. It also highlights the need for financial institutions to ensure their third-party vendors are compliant with NIST and FISMA regulations.

Breaches can also result from exploited weaknesses in software vendor’s development environments and the software deployed to their customers. This can impact both commercial and government organizations. For example, Governments work with third-party vendors, including defense contractors and IT service providers. These vendors manage everything from national defense systems to public sector data. So, these vendors are targets for nation-state attackers.

The SolarWinds breach, which impacted multiple government agencies, shows how attackers exploit vulnerabilities in vendor systems to compromise critical infrastructure. Governments must enforce stringent vendor assessments, particularly for contractors managing sensitive systems, ensuring compliance with CMMC and FISMA standards.

To fortify and maintain your security posture, third-party vendor risk management is a must. The increasing complexity of cybersecurity makes this task increasingly complex. However, you do not have to take this responsibility on alone.

Carson & SAINT has the products, services, expertise, and experience you need to manage the risks of third-party vendors across virtually all sectors. Contact us today to learn more about how we can help you increase the effectiveness of your third-party vendor risk program, as well as your comprehensive risk management program.