More registered investment advisory (RIA) firms are working with third-party vendors to efficiently and cost-effectively support operations, so they can spend more time working with clients. However, the increasing reliance on third-party providers has opened avenues for cyber threats.
The SEC’s intensified focus on third-party vendor risks, culminating in the proposed third-party vendor management rule, underscores the critical need for robust due diligence and risk mitigation strategies.
Here are some best practices to help your firm navigate third-party vendors.
Mitigating third-party vendor cybersecurity risks
As a part of ensuring your firm has a thorough cybersecurity compliance program, your compliance team must know how to mitigate third-party vendor risks. Your firm can mitigate third-party vendor risks by:
1. Performing due diligence.
Conduct thorough due diligence before engaging with a vendor. Identify and address potential information security issues before implementation. Additionally, ongoing due diligence reviews should be a routine practice to adapt to evolving threats.
2. Regularly assessing vendor risk.
Evaluate each vendor’s potential risk to the firm, with a focus on those handling Non-Public Information (NPI) or critical to operations. Tailor due diligence processes based on the perceived risk level.
3. Establishing non-disclosure and confidentiality agreements.
Establish non-disclosure and confidentiality agreements with vendors, regardless of their risk level. Safeguarding NPI and sensitive business information is paramount in securing the partnership.
4. Limiting data and access.
Grant vendors access only to the minimum necessary sensitive data required for service delivery. Critical vendors may require broader access, but lesser-known vendors should have limited access to NPI.
5. Reviewing vendor contracts.
Scrutinize vendor contracts to address crucial aspects such as data storage, breach notifications, use of subcontractors and other security-related provisions. A well-defined contract sets the foundation for a secure partnership.
6. Reviewing business continuity planning.
Evaluate the vendor’s business continuity plan, especially for critical services. A disruption in a vendor’s operations can impact the RIA firm’s ability to provide timely services to clients. Ensuring vendors have robust plans in place is vital for mitigating potential disruptions.
7. Understanding who from the vendor will have access to sensitive data.
Just as RIA firms limit internal access, vendors should have clear data access control policies to minimize the impact of a security breach.
8. Researching the vendor online.
Conduct a simple but critical online search to uncover any potential red flags. Recent complaints or information security issues may surface, offering valuable insights into the vendor’s reputation and reliability.
As the SEC continues to be vigilant about third-party vendor risks, compliance teams must proactively implement these steps to fortify their cybersecurity compliance programs. By prioritizing due diligence, risk assessments and strategic partnerships, RIAs can navigate the intricate landscape of third-party vendor relationships while safeguarding sensitive data and ensuring regulatory compliance.
Download The Ultimate Guide to Cybersecurity Compliance for further guidance.
Cybersecurity Compliance with COMPLY
At COMPLY, we understand how challenging it can be to navigate the complexities of cybersecurity compliance. As a matter of fact, COMPLY offers tailored consulting and technology services to help you ensure develop a robust cybersecurity compliance program, implement effective risk management strategies and stay up-to-date on the latest regulatory developments.
As the cybersecurity landscape continues to change and impact firms, firms that are proactive will be well-positioned to thrive in this dynamic market. By choosing COMPLY, you gain a trusted partner who operates with integrity. Make an informed choice for the success of your regulatory compliance program today.
Need further guidance with your firm’s cybersecurity compliance program? Let’s talk!
