Managing third-party cybersecurity risks in the financial supply chain

The financial sector operates within a complex web of interconnected systems and third-party relationships. From cloud service providers and software vendors to payment processors and data analytics firms, financial institutions rely heavily on external partners to deliver services and drive innovation. However, this interconnectedness introduces significant cybersecurity risks, as vulnerabilities in the supply chain can create entry points for cyberattacks with potentially devastating consequences.

The growing threat of supply chain attacks

Supply chain attacks are on the rise, targeting vulnerabilities in third-party vendors to gain access to their clients’ systems and data. These attacks can be particularly damaging because they exploit trust relationships, allowing attackers to bypass traditional security measures.

Recent high-profile incidents have highlighted the severity of this threat:

• The SolarWinds Attack: In 2020, the SolarWinds supply chain attack compromised numerous U.S. government agencies and private companies, including financial institutions. Attackers injected malicious code into SolarWinds’ Orion software, which was widely used for network monitoring and management. This allowed them to gain access to sensitive data and systems of thousands of organizations.

• The MOVEit Transfer Attack: In 2023, the Cl0p ransomware gang exploited a vulnerability in the MOVEit Transfer file transfer software. This attack impacted hundreds of organizations across various sectors, including financial services, resulting in significant data breaches and operational disruptions.

These examples demonstrate the potential for supply chain attacks to cause widespread damage, disrupt critical operations, and erode trust in the financial ecosystem.

Key challenges in managing third-party risks

Financial institutions face several challenges in managing third-party cybersecurity risks:

• Lack of Visibility: It can be difficult to gain complete visibility into the security practices of all third-party vendors, especially those further down the supply chain.

• Complex Interdependencies: The intricate web of relationships between financial institutions and their vendors makes it challenging to identify all potential points of vulnerability.

• Evolving Threat Landscape: Cyberattacks are constantly evolving, and attackers are developing new techniques to exploit supply chain vulnerabilities.

• Regulatory Scrutiny: Regulators are increasingly focused on third-party risk management, requiring financial institutions to implement robust controls and demonstrate due diligence.

Best practices for financial institutions

To mitigate third-party cybersecurity risks, financial institutions should implement the following best practices:

• Vendor Risk Management Frameworks: Establish a comprehensive vendor risk management framework that includes clear policies, procedures, and controls for assessing, monitoring, and managing third-party risks throughout the vendor lifecycle.

• Due Diligence and Assessment: Conduct thorough due diligence before engaging with any third-party vendor. This should include assessing their security posture, compliance certifications, and incident response capabilities.

• Contractual Safeguards: Include strong cybersecurity requirements in contracts with vendors, such as data protection clauses, security standards, incident reporting obligations, and audit rights.

• Ongoing Monitoring: Continuously monitor the security performance of vendors, including regular security assessments, vulnerability scans, and penetration testing.

• Incident Response Planning: Develop a robust incident response plan that addresses potential supply chain attacks. This plan should outline procedures for communication, containment, eradication, and recovery.

• Collaboration and Information Sharing: Foster collaboration and information sharing with other financial institutions, industry groups, and government agencies to stay informed about emerging threats and best practices.

The role of technology

Technology can play a crucial role in managing third-party cybersecurity risks. Solutions such as vendor risk management platforms, security ratings services, and threat intelligence platforms can help financial institutions automate risk assessments, gain visibility into vendor security posture, and proactively identify potential threats.

Third-party and supply chain risks pose a significant threat to the financial sector. By implementing vendor risk management frameworks, conducting thorough due diligence, and leveraging technology, financial institutions can mitigate these risks and protect their systems, data, and reputation.