With 98% of organizations integrated with at least one-third party experiencing a cyberattack in the past two years, CISOs have recognized the critical need for enhanced visibility into their supply chains and the use of third-party risk management tools, particularly for ensuring compliance. And they have been prioritizing their budget accordingly. 

According to our recent survey of CISO leaders, 20% identified compliance with new regulations, particularly those related to AI, as one of their top concerns this year. While 79% viewed cybersecurity questionnaires for third parties as the most effective tool for reducing third-party cyber risks, 69% believed compliance management tools were the most effective overall. In addition, 68% highlighted API monitoring of third parties in the supply chain as a key strategy for mitigating third-party risks.

Overview of Global Regulations  

Global regulations vary in their applicability to companies based on factors such as industry, geographic presence, objectives, or a combination of these elements. For example, the California Consumer Privacy Act (CCPA) governs data privacy for California residents, whereas the General Data Protection Regulation (GDPR) applies to organizations and their third parties that handle or process the data of EU-based customers. GDPR functions as both a location-specific regulation and a comprehensive framework aimed at achieving specific data protection objectives.

Other regulations, such as ISO 27001, and the International Organization for Standardization, focus on cybersecurity and function as an international standard for information security management. They are relevant to organizations across industries regardless of their geographic location. It also offers a framework for third-party risk management. 

As the digital ecosystem and healthcare and financial organizations in particular become more reliant on third parties, however, there has been an increased regulatory focus on the cyber risks posed by outsourcing to third parties. New and complex regulations have been drafted to specifically deal with the security risks posed by outsourcing to third parties.

These regulations include: 

  • DORA (Digital Operational Resilience Act). DORA focuses on the financial services sector in the EU, with specific requirements aimed at strengthening third-party information and communication technology or ICT services. These are services that the financial services sector relies on heavily, often for critical services such as data and cloud services. 
  • NIS2 (Network and Information Systems Directive). NIS2 is an EU regulation requiring organizations across a wide range of sectors to report cybersecurity incidents that include data breaches, DDoS attacks, and unauthorized access to services and develop an effective incident response. It also demands that organizations require their third parties to adhere to the same cybersecurity standards, including evaluating the risk posed by these third parties with access to sensitive data. 
  • NIST Cybersecurity Framework (NIST CSF). The NIST CSF is a cybersecurity framework first adopted by government agencies and later used by organizations of all sizes and sectors. It includes controls for third-party risk management and the role of each manager across the organization. 

Impacts on Third-Party Risk Management (TPRM)

The increased regulations and continuous evolution of compliance have a combined impact on TPRM. First, they demand enhanced due diligence in vendor assessments, as evolving regulations demand vendors continuously evaluate their third parties for cyber risk, determine the level of risk, and prioritize accordingly. Second, they require continuous monitoring of third-party cyber posture for proactive detection of threats and real-time risk awareness. Finally, the legal and financial implications of non-compliance, along with the potential for significant reputational and operational damage following a data breach, have driven organizations to prioritize regular audits. These audits help ensure that third-party vendors comply with contractual obligations, regulatory requirements, and cybersecurity standards.

Increased Accountability for Third Parties

Cloud migration, the outsourcing of critical systems such as data processing and cloud storage, and the adoption of evolving technologies such as AI, machine learning, IoT, and expanded third-party collaboration tools have made software systems increasingly interdependent. Consequently, organizations face the added responsibility of managing fourth-party risks — vendors that indirectly provide services through third parties. Some of these fourth parties have critical access, often through third-party systems, to highly sensitive data within the organization.

Key Elements of Third-Party Compliance

As organizations across industries increasingly rely on third parties, there is a growing expectation for these vendors to meet the same strict regulatory standards imposed on the primary organization. This responsibility is particularly crucial in sectors that provide critical services, such as finance and healthcare, where compliance and risk management are paramount. Regardless of the scope and overlapping of regulations, however, third-party compliance for any organization includes a number of key elements.    

These include: 

  • A risk-based approach to managing third parties that prioritizes risks based on the level of potential impact to the organization.
  • Regular audits, reporting, and transparency deliver the benefits of risk management, continuous improvement, and accountability. 
  • Incorporating cybersecurity frameworks (e.g., NIST, ISO) to enable the consistent evaluation of cybersecurity best practices. 

Risk-Based Approach to Managing Third Parties

With organizations relying on dozens or even hundreds of third parties, scaling their approach to third-party risk management is essential. A common and effective method is a risk-based approach, which involves identifying, categorizing, and prioritizing risks based on the level of potential impact to the organization. For instance, a third-party vendor that processes your organization’s most sensitive customer data, such as a payment processor, would pose a high level of risk and require immediate and rigorous mitigation efforts. In contrast, a third-party tool like a meeting scheduler (e.g., Calendly or Microsoft Bookings) would typically have access only to basic information such as email addresses and calendar metadata, representing a significantly lower risk level.

Regular Audits, Reporting, and Transparency

Global regulations often specify the requirement to conduct regular audits to ensure continuous compliance with security standards and regulatory requirements. These ongoing audits include different audit timelines for each third party according to its risk profile. For example, third parties posing a high risk would receive more frequent audits than those posing a low risk to an organization. Reports communicate the results of these audits and the status of third-party compliance, offering a proactive approach to detecting vulnerabilities and remediating potential security gaps in the supply chain. Both audits and reports should be transparent and foster clear expectations of both parties of the demands of compliance, the consequences of non-compliance, and preparation for external audits. 

Incorporating Cybersecurity Frameworks (e.g., NIST, ISO)

Cybersecurity frameworks such as NIST CSF and ISO have been widely adopted as a standardized approach to third-party risk management, enabling the consistent evaluation of cybersecurity best practices. Using these frameworks as a guideline, organizations can standardize third-party assessments and evaluation of risk. This consistent approach also enables the scaling of risk evaluation and the ability to manage and report incidents in a predictable and standardized manner. 

Best Practices for TPRM to Comply with Regulations 

In addition to these key elements, best practices also allow organizations to more easily comply with regulations. First, organizations should align internal policies with global regulatory frameworks to ensure compliance across legal jurisdictions, the standardization of vendor management practices, and increased vendor accountability. 

Second, new technologies such as automation and AI can be used for continuous monitoring, such as mapping the digital supply chain and identifying the KEVs, CEVs, and vulnerabilities relevant to each party so that organizations can prioritize and remediate against risk. Finally, organizations should use tools and technology, along with a culture of cyber awareness to foster cross-functional collaboration across the organization and with third parties. 

Challenges and Considerations of Global Regulatory Compliance

Regardless of the key elements and best practices applied, organizations face similar challenges in meeting these evolving global regulations. First, there is the challenge of balancing global regulatory compliance with business efficiency while minimizing any business operation. Second, the complex global supply chains demand more visibility to defend against threats. Finally, these different and complex regulations can be difficult to navigate, as they each may demand different security requirements, such as standards of encryption and types of access controls. 

Balancing Global Regulatory Compliance with Business Efficiency

Organizations should take a number of approaches if they want to balance global regulatory compliance with business efficiency. First, they should align business goals with compliance. For example, they can automate compliance tasks, such as risk scoring. Second, they can develop automated and standardized checklists and questionnaires based on easily customizable templates. Finally, a risk-based approach also helps minimize any potential for operational disruption, especially when combined with continuous monitoring of compliance status and third-party security posture. 

Handling Complex Global Supply Chains

As a result of the increase in third-, fourth-, and fifth-party systems, the modern global supply chain demands a higher level of visibility than ever before. It must be continuously monitored and assessed to identify, categorize, and prioritize the mitigation of risk as internal cybersecurity policies, the supply chain, internal systems, IT infrastructure, and the regulatory and threat landscape are all dynamic and susceptible to changes. 

Navigating Overlapping Regulations (GDPR, NIST, etc.)

A unified approach to compliance that addresses overlapping controls by mapping the requirements of each regulation and identifying commonalities of each. This might include prioritizing controls that satisfy multiple regulations, such as GDPR which focuses on data protection, and NIST, which focuses on data integrity. It might also involve developing a strategy that streamlines multiple regulatory frameworks across different jurisdictions, such as enforcing encryption standards that satisfy GDPR and NIST requirements simultaneously.  

Global Regulations and Third-Party Risk Management

Today’s evolving regulatory landscape and increased reliance on third parties and technologies demand a robust approach to third-party risk management. With its Risk DNA assessment, Panorays offers the only contextual and evolving risk-based approach to managing third parties and adhering to multiple global regulatory standards and regulations. 

Benefits of the third-party cyber risk platform include: 

  • Customized cybersecurity questionnaires with frequency, questions, and templates all based on relevant compliance and industry standards (e.g., NIST CSF, ISO), regulations (e.g., DORA, ), and your third-party profiling. 
  • AI-powered validated cybersecurity questionnaire responses by gathering data from internal documents and external domains so that you gain a holistic view of risks and gaps and can easily review and address them. 
  • Streamlined third-party collaboration that transforms questionnaire responses into automated tasks. Establish due dates, receive timely reminders, and engage in convenient in-app chats for effortless communication with your external vendors.
  • Automatic remediation tasks based on third-party criticality so that you close the security gaps that pose the greatest risk to your organization first. 

Want to learn more about how your organization can effectively adhere to global regulatory compliance and third-party risk? Get a demo today! 

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