When cybercriminals successfully exploited a vulnerability in the MOVEit Transfer application, that in turn affected nearly a hundred third parties, leading to data breaches from suppliers, partners, and clients across the supply chain. That’s why many organizations turn to vendor security rating systems, which relies on continuous monitoring, threat intelligence, and automation to quantify vendor risk. This can be done not only for potential new vendors before onboarding but to all existing ones throughout the vendor lifecycle.

What Are Vendor Security Rating Systems?

Vendor security rating systems are quantifiable scores that help evaluate the cyber risk posed by an organization’s vendors. They standardize the process of evaluation by assigning a numerical score to different risk factors, such as past data breaches and security incidents, compliance status, and security controls. The higher the score, the lower the risk. 

However, these cyber risk scores only evaluate these parameters based on a static point in time. A more accurate evaluation of vendor risk would be based on data gathered in real-time from continuous monitoring. 

This is problematic for a few reasons: 

  • An organization’s network and IT infrastructure is dynamic. A simple upgrade or re-configuration has the potential to introduce vulnerabilities in your third parties.
  • Lack of visibility into the supply chain. Organizations are increasingly outsourcing services to different SaaS vendors due to a proliferation of these cloud-based services that exist in the market. They now change vendors more frequently, with 
  • Limited resources. Although enterprise-level organizations may have larger budgets for advanced cybersecurity solutions, the third-party SaaS vendors they outsource often lack the resources for building a strong security posture, such as TPRM technology and supporting teams.

Importance of Vendor Security Ratings in Today’s Cybersecurity Landscape

The rise in AI technology, increased reliance on third parties, and migration to the cloud have all contributed to a rising trend of third-party attacks and magnified the importance of vendor risk management. Security rating systems offer a proactive solution to monitoring an increasingly complex third-party risk landscape. In addition, a quantifiable assessment of each vendor’s security posture makes it easier for your security team to make and justify critical decisions related to mitigation, onboarding, or terminating a vendor relationship with other important stakeholders. 

Additional benefits include:

  • Reduce the risk of cybersecurity attacks and data breaches. When implemented in the due diligence phase of TPRM, before onboarding a potential vendor, vendor security ratings can reduce the risk of cybersecurity attacks and data breaches in addition to regulatory fines and penalties.
  • Improved incident response. In the event of a security incident, your team will have the controls and processes in place to respond as soon as possible, limiting potential damage to the organization’s reputation and security and reducing recovery costs.
  • Ability to focus security efforts on high-risk vendors. Vendor security ratings allow organizations to quantify the level of risk posed by each vendor, allocating more time and resources to those who pose the most risk. 
  • Vendor accountability. When organizations are transparent about data and security and share the information with vendors, it encourages them to maintain security practices more than they might otherwise. 

Key Components of Vendor Security Rating Systems

Vendor security rating systems play an important role in strengthening your organization’s cybersecurity posture but must include various components to ensure their reliability and ability to generate a comprehensive risk score. 

These components include: 

  • Risk assessment and scoring that prioritizes the most serious risks to be first in line for mitigation efforts. 
  • Continuous monitoring and real-time updates to ensure vendor risk ratings accurately reflect current conditions. 
  • Regular compliance and regulatory assessments to build vendor trust in vendor security, fostering smoother and more effective collaboration.
  • Threat intelligence to proactively monitor emerging threats and mitigate them as soon as possible. 
  • Remediation and vendor engagement strategies that include detailed reports on identified risks and specific remediation steps towards them. 

How Risk Assessment and Scoring is Critical for Vendor Security Rating Systems

A detailed risk assessment should conduct numerous tests across the vendor’s ecosystem, including networks, IT systems, applications, and human vulnerabilities, to reveal all possible security gaps. Only after receiving the results of the risk assessment can a rating score be calculated. Advanced vendor security rating systems allow organizations to customize this score, giving different weight to different factors depending on its level of importance and risk appetite. For instance, one organization may decide that a vendor with a history of data breaches poses a high risk to its organization, while another may instead decide that lack of an incident response plan has more potential to harm their organization. 

Continuous Monitoring and Real-Time Updates for Vendor Security Rating Systems

New attacks, evolving network configurations, software patches, and updates—not to mention the ever-evolving cybersecurity landscape—demand continuous monitoring of your IT infrastructure to promptly identify and address any cyber vulnerabilities. Continuous monitoring is also essential in a dynamic vendor landscape, where organizations may often switch vendors. Tracking and evaluating the security posture of each vendor requires automated tools that can gather this information and deliver alerts in real-time of any changes.  

Vendor Security Rating Systems Must Include Regular Compliance and Regulatory Assessments

Another component of vendor security rating systems is its ability to evaluate the vendor’s compliance with relevant industry regulations such as GDPR, HIPAA, NIST, and DORA. This can include an assessment of the vendor’s security controls, vulnerability testing, incident response, and whether or not it has a business continuity plan in place in the event of an attack. This proactive approach demonstrates due diligence in managing third-party risks, both ultimately reducing the risk of regulatory fines and penalties and building greater trust in the vendor’s compliance with regulations. 

Why Threat Intelligence Integration is Important for Vendor Security Rating Systems

Threat intelligence is another critical component for vendor security rating systems as it enables organizations to proactively monitor emerging threats. Its integration allows for real-time updates that can also evaluate the context and level of risk posed to your organization. Implementation of threat intelligence tools also helps organizations demonstrate due diligence in managing third-party risks. Advanced threat intelligence first maps third-party and supply chain dependencies and integrates with current existing cybersecurity tools such as security information and event management (SIEM) solutions, web application firewalls (WAF,) and next-generation firewalls (NGFWs) to deliver insight into third, fourth and n-th party security. 

Remediation and Vendor Engagement Strategies

Finally, vendor security rating systems include both opportunities for remediation and vendor engagement. With accurate data on vendor risk and real-time alerts, organizations can make informed choices about vendor relationships. Even if a vendor scores “high” for its risk rating, it doesn’t mean the organization must end its business relationship with it. Instead, it can collaborate with the vendor to ensure proper mitigation, implementing stronger security practices such as stricter security controls, data encryption of sensitive data, detailed security audits, and requiring the vendor to deliver frequent reports on its security posture, including risk assessments and remediation efforts. 

It can then use the insights and experience it gained to update clauses in its service-level agreements and contracts to proactively include these security practices with its future vendors. 

Best Practices for Implementing Vendor Security Rating Systems

Although vendor security rating systems deliver many benefits and play a crucial role in TPRM, they also have limitations. First, they typically do not take context into account, which may affect how your organization perceives a specific threat. For example, many risk ratings are based only on external assessments without including internal security controls, which gives you an inaccurate report of vendor risk levels. Second, many vendor risk rating systems rely on outdated data, resulting either in many false positives or a false sense of security that your vendor is dealing with evolving threats. Finally, vendors can over-rely on these ratings and build a security strategy based on them instead of using them as one of many factors in their approach to cybersecurity. 

Define Clear Security and Compliance Criteria

When implementing vendor security rating systems, it is important to evaluate compliance and security through specific criteria that align with the organization’s risk tolerance and industry standards. This could include a thorough evaluation of the vendor’s data protection and privacy requirements, an assessment of its level of adherence to cybersecurity frameworks, or exactly what steps it is taking to ensure operational resilience in the face of a cybersecurity attack or disruption to critical services. Defining this criteria in advance ensures that the vendor security rating system evaluates vendors using relevant, impactful metrics and follows a standardized process, resulting in consistent assessments across all vendors. 

Integrate Ratings with Risk Management Processes

Since vendor security rating systems have limitations, they should be integrated into an organization’s broader risk management strategy. For example, manual assessments like on-site audits and interviews with vendor personnel can uncover more nuanced risks than vendor risk ratings. Vendor contracts and SLAs should also include clauses and sections specifically related to the security obligations of third parties. When combined with continuous monitoring and threat intelligence, however, vendor security rating systems are an effective tool for risk prioritization and can be useful for developing risk mitigation strategies for high-risk vendors. 

Regularly Review and Update Vendor Ratings

Since vendor risk ratings typically evaluate a vendor’s security in a specific point in time, they must be continuously reviewed and updated so that they accurately reflect the current vendor security conditions. By gathering data and delivering real-time alerts, continuously monitoring tools play a critical role in an organization’s ability to implement vendor risk rating security systems that are accurate and reliable. 

Collaborate with Vendors on Improvement Plans

Since organizations don’t have direct control of their third party’s security processes or strategies, it is imperative that they foster an environment that encourages collaboration with their vendors to manage and improve TPRM. Advanced third-party risk management solutions deliver visibility both into the origins of the cyber gaps as well as the specific steps required to remediate them.

Leverage Automation for Efficiency

Automation of vendor security rating systems allows for identification and mapping of dozens or hundreds of vendors as well as the continuous updating and simultaneous evaluation of these vendors in their supply chain. This is essential today as organizations not only increasingly rely on these third parties, but switch cloud services and vendors frequently. In addition, third parties outsource critical services to fourth parties (who also outsource to fifth parties), adding further complexity to the supply chain. Automation can be used to run initial risk assessments during vendor onboarding to ensure a minimum standard for security for vendors to be approved.

Vendor Security Rating System Solutions

Vendor security ratings systems are essential in strengthening an organization’s cybersecurity posture. They help improve risk visibility throughout the supply chain by demonstrating which vendors are actively improving their security posture. With key components including continuous monitoring and threat intelligence, they gather accurate data and insights, allowing for proactive threat management. Together all of these benefits help streamline decision-making, allowing security teams to develop a robust vendor risk management strategy in a dynamic and increasingly complex supply chain environment. 

Want to learn more about Panorays’ how Panorays vendor security rating system delivers the most accurate vendor risk score on the market? Get a demo today!

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