3 tips to mitigating third-party risk

Warren Green

The action - or inaction - of a third party could have dire consequences for your business.

Your company could experience backlash from a third party’s inferior-quality service, data breaches resulting from a third party’s inadequate security practices, or supply chain issues as a result of a partner’s poor contingency planning. Further to this, supply chains exist as an ecosystem, with multiple tiers of partners that serve a manufacturer’s own vendors. The more complicated the supply web, the more challenging it is to identify and manage imminent risks.

Potential third-party risks include regulatory and legal violations, reputation damage, information security breaches and financial volatility. In order to mitigate these, and to effectively manage third-party risk, one should follow the guidelines set out by The Office of the Comptroller of the Currency (OCC) for assessing and managing Third Party risk. Organisations should perform the following throughout the life cycle of the relationship as part of its risk management process:

1. Oversight and accountability

   Assigning clear roles and responsibilities for managing third-party relationships and integrating the organisation's third-party risk management process with its enterprise risk management framework enables continuous oversight and accountability.

2. Documentation and reporting

   Proper documentation and reporting facilitates oversight, accountability, monitoring, and risk management associated with third-party relationships.

3. Independent aeviews

   Conducting periodic independent reviews of the risk management process enables management to assess whether the process aligns with the organisation's strategy and effectively manages the risk posed by third-party relationships.