Why Banks Should Consider Becoming Third Party Providers
The banks and financial institutions of today work closely with numerous third-party suppliers. Although such partnership offers a lot of advantages, it also poses some essential questions about the confidentiality of the data and services to which these suppliers have access. In fact, the financial industry is among the most targeted, accounting for around 10 percent of all data breaches across all sectors in 2019, according to Verizon’s 2020 Data Breach Investigations Report.
Why do banks hire third-party vendors?
In this post, we address the main reasons why independent contractors are employed by financial firms and what cybersecurity threats they are subject to. We further discuss how it can help you mitigate these risks by developing a third-party provider risk control platform.
All types of operating functions can be outsourced by banks and financial institutions, from valuation and appraisals to marketing and even loan servicing. There are various advantages of operating with individual subcontractors:
Let’s dig at these explanations more closely.
Increased versatility and internal team scalability. Recruiting
third-party providers allows financial companies the ability to ramp up the way they like their internal teams. Companies usually need to employ a new professional when faced with a new challenge. For third-party manufacturers, their demands will be fulfilled by a subcontractor.
Cut costs, especially in terms of recruiting.
Head hunting is expensive and time-consuming, and it is not always successful. In addition, partnering with third parties can assist an organization to save some tax money.
Delegating those functions to third-party providers makes it easier for financial institutions to operate more effectively: process more activities, support more clients, and so on.
Introduce new solutions and innovations
A perfect way to implement new, game-changing technologies with reduced risks is to partner with third-party vendors. Organizations should leave subcontractors with the processes of selecting, analyzing, and assessing solutions and step directly to the stage of execution.
Many banking companies remain skeptical of recruiting independent contractors, considering all these benefits, mainly because of the protection and regulatory problems involved. In the next segment, when dealing with subcontractors, we take a closer look at the main obstacles and threats that financial institutions face.
Cybersecurity risks of third-party services
Banks also need to give access to confidential records, critical infrastructure, and other valuable services to third parties. Probably the greatest risk of cooperating with subcontractors is this. There is no assurance, after all, that the third-party provider would not abuse their access rights. In addition, in order to access your confidential data and vital infrastructure, hackers will threaten your subcontractors.
It is important to note that while you may assign certain roles and functions to a third party, it is also your own duty to maintain the cybersecurity of your company. Neglecting this task will result in catastrophic consequences. We’ve had lots of facts in the last few years:
A subcontractor uploaded a directory of personal records of 20,000 Scottrade Bank clients to insecure cloud storage in April 2017. Representatives of the bank confirmed that the leak was the result of human negligence on the part of the subcontractor and was not caused by the bank’s own structures.
Hackers used a third-party vendor in July 2017 to strike UniCredit, the Italian bank. In ten months, the bank reportedly suffered two attacks, the first in autumn 2016, the second in summer 2017. Nearly 400,000 consumer loan accounts were revealed as a result of these attacks, including personal identification and banking records.
Cybercriminals targeted the website of the European Central Bank, operated by a third-party company, in December 2018. For several months, the assault remained unidentified. There was a chance of data leakage due to malware injected by the attackers, according to official statements.
In January 2019, owing to a third-party vendor’s error, many US banks and financial companies experienced a significant data leak: a server where Ascension stored digital copies of paper financial documents was misconfigured. As a result, anybody can use a website of more than 24 million credit reviews with confidential consumer information.
Recognizing the risk that third parties could pose to cybersecurity in the financial sector, the regulatory authorities pay careful attention to the issue of risk management by third parties. In particular, one of the main provisions of the Risk Management Advice bulletin published in 2013 by the US Office of the Comptroller of the Currency is to handle third-party vendor risks (OCC).
So, what are the risks posed by third-party vendors?
Third actors are not always the villains, as the situations we have discussed illustrate. Cybercriminals also attack bigger organizations subcontractors.
Let’s take a look at six primary cybersecurity issues about third-party vendor cooperation:
Leaks in results. Knowledge is the most precious commodity of a financial institution, and it can be attacked by cybercriminals or destroyed by human errors.
Financial repercussions. Data violations also add to administrative fines or complaints by users. In addition, following an incident, impacted banks must perform compliance checks, digital forensic investigations, and cybersecurity solutions.
Reputational damage. Security incidents associated with third parties can damage the credibility of a bank and lead to a loss of consumer confidence.
Issues about compliance. Regulations and guidelines have to be met by financial institutions: OCC bulletins, GLBA, PCI DSS, NIST, etc. Failure to comply can lead to fines and punishments.
Operational disturbances. Incidents in cybersecurity caused by third-party providers will severely interrupt the activities of your organization and impact the availability of your network and services.
Risks from the fourth-party. Who told you why your third partners can’t have their own third parties? Be sure the subcontractors are not re-outsourcing to so-called fourth parties all of the vital resources. You will do this by adding to the contract a matching clause.
The good news is that by incorporating a thorough third-party risk management (TPRM) policy, you can effectively mitigate these risks.
Working with third parties provides banks with a variety of opportunities, from saving tax dollars to improving the efficiency of their services. Third-party providers, however, also have exclusive access to their customers’ sensitive properties, and financial institutions have little ability to monitor how these rights are used.