The usage of third-party vendors increased exponentially when the pandemic first began, and this, in turn, created an increased focus on TPRM. Security breaches and risk incidents have become more common, and they can affect your supply chain and have consequences on your organization.
What is TPRM?
TPRM stands for third-party risk management, and it focuses on the identification and reduction of risks that can occur when operating with third parties. When organizations form relationships with third parties, there are several different kinds of risks that may be encountered, like cybersecurity, compliance, operational, and reputational.
These risks can mean bad news for an organization, but the best TPRM companies can help manage and prevent them. As we continue into 2022, there are some rising trends for TPRM.
Rise of Vendor Breaches
There is an estimation that, in 2022, 60% of all security incidents will come from third parties. There has been an increase in vendor-targeted attacks, and in 2021 there was a substantial increase in supply chain attacks.
Because of the now frequent cyber-attacks, it is likely that there will be an increased focus on cybersecurity. Because there are many organizations and companies still working remotely, the need for heightened security is as important as ever. Organizations will begin using TPRM assessments of third parties as a crucial factor in their partnerships and contracts.
Technology has moved faster than legislation; though regulatory bodies have always been aware of the threat of privacy violations, there hasn’t been much legislative action to help protect this privacy.
Given the increased rate of cyber attacks, privacy laws will likely become a main focus, especially since privacy and security have become major political topics.
ESG Risks as Higher Priority
ESG stands for Environmental, Social, and Governance risks, and these are risks associated with organizations and third parties. It is a risk that can occur when laws and policies that both your organization and Regulatory bodies have put into place regarding the treatment of employees, sustainability initiatives, and the environmental impact aren’t followed by either the organization or the third party.
Other countries, like the European Union, have announced legislation involving environmental impacts and human rights, and it is likely that other countries will do the same. An increase in this type of legislation will make it increasingly important to assess third-party vendors and their compliance.
More Third-Party Vendor Relationships
The services and products that third-party vendors and suppliers can bring have become essential for many organizations that have become dependent and reliant on these third-party companies. An organization might work with over a thousand third parties, and this number continues to grow as businesses grow.
We’re going to see further growth in these relationships, but there is an additional risk to them that isn’t always considered. An organization may work with a third-party vendor, but that vendor has its own suppliers and manufacturers. Not only does that vendor pose a potential risk to your business, every one of their vendors and subcontractors can pose that same risk.
As the list gets longer, it could become more difficult to manage the risks that your supplier’s supply chain poses to your organization. Because of this, it is essential that you assess the risks that these fourth parties may bring and conduct your due diligence on them.
The environment for regulation continues to change and evolve, and third-party relationships are constantly under scrutiny by regulators. These regulators hold both organizations and third parties responsible for their actions, as the fault of the third party is the fault of the organization.
While some of the emerging TPRM trends are concerning, they also mean that we are moving towards better risk management practices.