5 questions to ask before onboarding a vendor

Financial institutions operate in a complex digital world, and they rely on many third-party vendors for crucial services. For example, think about cloud computing, payment processing, and even customer support. However, these partnerships bring cybersecurity risks. Indeed, a vendor’s security flaws can open the door to attacks. Consequently, this can seriously hurt a financial institution. Therefore, that’s why asking the right questions before onboarding a vendor is so important.

This article outlines 5 key questions, and these questions help financial institutions assess a vendor’s security. Furthermore, they also help minimize potential threats to sensitive data and systems.

The importance of vendor due diligence

Why is it so important to check out a vendor carefully? Well, there are several reasons:

• Find and Fix Risks: Due diligence helps financial institutions spot cybersecurity risks. For instance, this includes looking at a vendor’s security controls and how they handle vulnerabilities. By finding these risks early, institutions can address them before they cause problems.

• Protect Sensitive Data: Financial institutions deal with a ton of sensitive information, such as customer details and financial records. So, due diligence makes sure vendors have the right safeguards to protect this data.

• Follow the Rules: The financial industry has strict rules about data protection and cybersecurity. Thus, due diligence helps institutions pick vendors that meet these requirements. This avoids fines and legal trouble.

• Keep Business Running: If a vendor has a security issue, it can disrupt a financial institution’s operations. Hence, due diligence assesses a vendor’s ability to keep services running, even during an incident.

• Maintain Trust: Customers trust financial institutions to keep their data safe. Unfortunately, a vendor-related security breach can damage that trust. Therefore, due diligence helps prevent these breaches and maintains the institution’s good name.

5 essential questions for potential vendors

Here are five key questions financial institutions should ask vendors:

1. What is Your Security Framework and Certifications?

   • Security Approach: A vendor’s security framework shows their overall approach to cybersecurity. For example, are they following a well-known framework like NIST or ISO 27001?
   • Security Proof: Certifications like SOC 2 provide proof that a vendor meets certain security standards.
   • Alignment: Do the vendor’s security practices align with the financial institution’s needs?

1. How Do You Handle Data Protection and Privacy?

   • Data Practices: How does the vendor encrypt data? What are their access control policies? How long do they keep data?
   • Regulatory Compliance: Do they comply with GDPR, CCPA, and other relevant laws?
   • Breach Notification: How will the vendor notify the financial institution if there’s a data breach?

1. What Are Your Incident Response Capabilities?

   • Incident Plan: Does the vendor have a plan for handling security incidents?
   • Communication: How will they communicate with the financial institution during an incident?
   • Recovery: How quickly can they recover their systems and data?

1. How Do You Manage Access Control and Authentication?

   • Access Limits: Does the vendor use “least privilege” access? This means users only have access to the data they absolutely need.
   • Strong Authentication: Do they use multi-factor authentication (MFA) for stronger security?
   • Access Reviews: Do they regularly review and update user permissions?

1. Can You Provide Evidence of Security Testing?

   • Proactive Testing: Does the vendor regularly test their security?
   • Penetration Tests: Can they provide reports from penetration tests (simulated cyberattacks)?
   • Vulnerability Scans: Do they regularly scan for vulnerabilities in their systems?

A stronger security posture

Asking these questions is a good start. However, financial institutions should also:

• Create a Vendor Risk Management Program: This program should cover all stages of the vendor relationship.

• Monitor Vendors Regularly: Keep an eye on their security performance.

• Use Strong Contracts: Vendor contracts should include clear cybersecurity requirements.

• Communicate with Vendors: Talk openly about security concerns.

By taking these steps, financial institutions can build stronger security and protect themselves from vendor-related cyber threats.