Managing Third Party Risks to Customer Data in Your Compliance Strategy

September 19, 2023

In today’s interconnected business ecosystem, companies rely heavily on third party vendors, contractors, and partners to provide services and manage sensitive customer data. However, these third party relationships – if not properly controlled and monitored – can significantly amplify risks of data breaches, non-compliance, and reputational damage. As such, ethics and compliance programs must take a proactive approach to managing third party cyber risks as part of their overall data protection strategy.

Third Party Inventory

A key first step is maintaining an updated inventory of all vendors and partners with any access to customer data. This includes seemingly minor parties like mail houses or records storage firms, as breaches anywhere in the pipeline can result in compliance violations and customer harm.

The inventory should track what data is accessible to each vendor and include key contract provisions like security requirements and liability clauses.

Due Diligence and Contracting

Risk-based due diligence is essential when onboarding new third parties that will handle sensitive data. Assess their data security posture, policies, training programs, and past breaches. Require improved controls if gaps are found before granting data access.

Contracts and NDAs must mandate security provisions like encryption, access limitations, incident reporting, and right-to-audit clauses. Include liability clauses to incentivize compliance, but consult your legal team on limits given potential negligence contributing to breaches.

Ongoing Monitoring

Regular compliance monitoring activities like surveys, audits, and policy reviews help verify ongoing adherence to security safeguards per contracts. Watch for unauthorized data sharing or subcontracting. Continuously assess third party personnel, technology and security environments for emerging risks.

Additional Safeguards

Security awareness training for a company’s own staff is also vital to avoid lapses like emailing customer data to unauthorized contacts or account hijacking. Robust identity and access controls are needed to limit data access to only necessary users.

To limit damage from potential vendor breaches, compliance programs should explore data minimization options like restricted data fields shared externally and aggregated analytics instead of raw customer records. Anonymization and “zero knowledge” approaches can also be effective for certain use cases.

Breach Notification and Data Mapping

Know breach notification duties and help vendors also understand their obligation to promptly notify your company in the event of any incident involving your data. Quick breach detection and coordinated response is essential for compliance and customer trust.

Maintaining comprehensive data mapping of what resides where across third parties enables smarter breach response and legal compliance if incidents occur. It also informs data recovery and migration plans for vendor contract termination if needed.

While robust technical controls are important, setting expectations through policies and culture is equally critical. Compliance helps establish ethical data handling norms and acceptable use standards for third parties. Data protection should be integral to codes of conduct.

By taking a comprehensive, risk-based approach to compliance oversight of third parties, organizations can greatly reduce cyber risks in an interconnected business world. Compliance is central to establishing security guardrails and protections around sensitive customer data throughout its entire lifecycle – including when trusted externally.

Referenced Work

Lewis, Nicole. “Managing Third Party Cybersecurity Risk.” Ethisphere Magazine, vol. 15, no. 4, 2019, pp. 36–39.

Cloud Security Alliance. “Domain 12 Guidance: Third Party Assurance.” Cloud Controls Matrix, 2021.

Baker, Courtney. “Minimizing Third Party Data Breach Risks.” International Association of Privacy Professionals, March 2018.