Protecting Financial Services from Third-Party Cybersecurity Risks

The financial services industry remains a prime target for third-party cyberattacks, with cybercriminals increasingly exploiting vendor relationships to access the sensitive data institutions are trusted to protect. 

Your cybersecurity is only as strong as the third-party vendors you rely on.

Third-party data breaches drain time and resources, damage reputations, trigger compliance issues, and can lead to significant financial losses.

That’s why it’s critical for financial institutions to manage third-party cybersecurity risks from the outset — and continuously throughout the life of the relationship. 

How Third-Party Cybersecurity Risks Impact Financial Services 

Third-party cybersecurity risk has long been a top concern for the financial services industry — and the data backs it up. Cybersecurity risk consistently ranks as the leading issue in Venminder’s State of Third-Party Risk Management annual survey. 

Here’s how third-party cybersecurity risks impact financial services: 

• Third-party breaches and data loss: Many third parties access sensitive financial data, including personally identifiable information (PII), account details, and transaction records. Inadequate third-party security controls can lead to a data breach. This exposes your organization to financial loss, reputational damage, and potentially regulatory scrutiny.
• Operational disruptions: Third-party cyberattacks can cause service outages and delays that impact your operations. Clients and customers may be unable to manage transactions and accounts and perform other activities. These disruptions erode customer trust and result in financial losses.
• Reputational damage: Your customers or clients are likely to hold your organization responsible for any disruptions or breaches – not the third-party vendor. Third-party cybersecurity risks can affect customer retention, investor confidence, and brand perception.
• Systemic risk: Many of your third-party vendors also support other financial services organizations. One single cyberattack can ripple through the supply chain – causing outages or other disruptions with multiple financial services organizations at once.  

Related: 4 Steps to Take When Your Vendor Has Poor Cybersecurity Practices 

How to Manage Third-Party Cybersecurity Risks in Financial Services 

Although you can’t completely avoid a data breach or disruption, your financial services organization can mitigate the damage quickly.  

Identifying and monitoring third-party cybersecurity risks ensures your organization quickly spots issues before they become bigger problems and is prepared to respond swiftly to third-party incidents. 

Here’s six ways to manage third-party cybersecurity in financial services: 

1. Collect cybersecurity due diligence documentation: If your third party poses higher cybersecurity risks, request documentation before the relationship begins. Evaluate the third party’s SOC 2 report, information security policies, training procedures, etc. This reveals insights into whether the third party is prepared to prevent, detect, and respond to cybersecurity issues. 
2. Ensure the vendor has cybersecurity insurance coverage: Verify the third party’s policy is current and covers applicable details like errors and omissions.  
3. Limit third-party data access: Apply the principle of least privilege to third-party access. Identify and assess which third parties access your data and how much they can access. Third parties should only access data and systems necessary to perform their services – nothing more. Implement controls like role-based access, multi-factor authentication (MFA), and regular access reviews.
4. Include protection inside third-party contracts: Address accessibility to cybersecurity policies and procedures, independent testing requirements, recovery times, backup responsibilities, data breach and disruption notifications, and data protection requirements in the third-party contract. 
5. Plan for third-party incidents: Include third-party breach scenarios in your incident response planning. Know how and when your organization will receive breach notifications, what actions third parties are expected to take, and how communication will flow between parties. Review your third parties’ incident response plans to ensure they’re prepared as well.  
6. Consistently monitor for changes: Third-party cybersecurity risk can change quickly. Periodic reviews of the third party’s security posture are no longer enough to protect your financial services organization. Use tools like risk intelligence to monitor for new vulnerabilities, dark web mentions, compliance lapses, and security profile changes.  

Related: Creating a Vendor Risk Management Program That Protects Your Organization 

Third-party cybersecurity risks can severely disrupt the financial services industry. If your third party has a poor cybersecurity program, you may experience data breaches, operational disruptions, loss of customer trust, and increased regulatory scrutiny.  

To ensure your third parties are prepared – and to protect your own organization – review third-party cybersecurity documentation, consistently monitor third parties, and prepare for future incidents. 

What vendor documents should you review to assess third-party cybersecurity programs? This infographic breaks down the different types to request.