A third party is a company or entity with whom you have a written agreement to provide a product or service on behalf of your organization to your customer or upon whom you rely on a product or service to maintain daily operations. A more general term for third party is vendor. A third party is your organization’s direct vendor.
Examples of Third Parties
Here are a few examples of who is considered a third party:
- Core processor
- Shred company
- Telephone company
- An attorney
- Marketing agency
Know Your Third Party/Vendor
Not only should you understand the meaning of a third party, but you should also “know your vendor”. What exactly does this mean? Essentially it means that review of a vendor's operations and commitment to regulatory compliance should be performed in order to verify that they are still in compliance with regulatory expectations, meet your organization’s expectations and needs and do not pose unnecessary risk to the organization.
3 Best Practices to Know Your Vendors
Here are three best practices to ensure you know your vendors:
- Perform extensive due diligence during the vendor vetting phase. In addition to your organization’s standard due diligence requirements that are performed on each vendor relationship, be sure to conduct complaint research, OFAC checks, request the Articles of Incorporation/business license and do a Secretary of State check, just to name a few.
- Continue to perform due diligence as the relationship progresses – in other words ongoing monitoring. Ongoing monitoring is often the forgotten pillar in third party risk management as many times organizations will heavily vet a vendor then contract with them and think everything is still great when in reality there could be a change that has occurred since the initial contractual commitment. It’s important to not skip this step as it’s imperative to discover any new risks that are posed. Signs of new risks are things like decline in financial condition, proper security controls are no longer in place or if the third party is receiving many complaints from your organization’s very own customers due to poor service levels.
- Do news checks. In today’s technology focused environment, news is easily accessible online. Be sure to do regular, if not daily, Google new searches on your critical and high risk vendors. You’ll be surprised to find that you can learn a lot about your third party, and quickly, with a simple news search.
The meaning of third party/vendor isn’t one that is overly complex or difficult to understand; however, when you look beyond the surface level definition you’ll find that there is so much more to it. It’s an important concept and knowing your third party/vendor is critical to the success of an organization.
Also implement these 24 best practices to successfully help minimize vendor risk - download the infographic now.