In an unusual convergence of interests, both law-makers and law-breakers are highly focused on the same aspects of your financial services institution (FSI):
- The sensitive and high-value data you handle
- Your reliance on technology for daily operations
- The complex web of third-party vendors you use.
Regulators are primarily concerned with protecting the financial system, ensuring data privacy, and maintaining stability. They impose stringent rules on FSIs to safeguard sensitive information, maintain critical operations, and protect customers.
Cybercriminals aim to exploit the same data and technological dependencies for malicious purposes, such as theft of money and/or identities, fraud, system disruption, and embarrassment of their victims.
Experian reported that 21% of breaches in 2023 were experienced by Financial Services.
Given the threat posed to FSIs by cybercriminals and their increasing success, cybersecurity risk monitoring and mitigation is no longer an option for your business to consider. It has become a critical priority.
This article explains why this is the case, covering:
- Types of cyber risks faced by financial services institutions
- How cyber risks occur within financial services
- The potential consequences of unaddressed cyber attacks
- How a vendor and contract lifecycle management platform can help
Types of Cyber Risks Faced by Financial Services Institutions
Financial services institutions are exposed to various types of cyber risks including:
- Data Breaches: Targeted attacks aimed at accessing personal, financial, and transactional data held by your institution
- Distributed Denial of Service (DDoS) Attacks: Overwhelming your IT systems with excessive traffic to disrupt online services
- Ransomware Attacks: Malware that restricts access to critical systems until a ransom is paid
- Social Engineering and Phishing: Manipulative tactics that trick employees into disclosing sensitive information
- Third-Party Risks: Cyber threats arising from vulnerabilities in the security measures of your vendors or subcontractors
How Cyber Risks Occur Within Financial Services
Cyber security can be compromised in various ways, including:
- Insecure Vendor Networks: Reliance on vendors for services like cloud storage and data processing can create entry points for cyber threats if vendor networks lack robust security
- Insider Threats: Employees or contractors with access to sensitive data may, whether through negligence or intent, pose risks to your institution
- Software Vulnerabilities: Unpatched or outdated software from vendors can introduce vulnerabilities, especially when your institution lacks visibility into the vendor's patching schedule
- Third-Party Vendor Vulnerabilities: Dependence on vendors for critical services can lead to indirect risks if a vendor’s cybersecurity is compromised
The Potential Consequences of Unaddressed Cyber Attacks
Failing to adequately monitor and manage cyber security risks can result in devastating consequences:
- Financial Losses: Direct theft, fraudulent transactions, and ransom payments can lead to significant financial losses, while the costs of remediation, legal fees, and penalties can quickly add up
- Legal Liabilities: Data breaches exposing customer information can result in lawsuits, further compounding the financial and reputational damage
- Operational Disruption: Cyberattacks can disrupt core systems like online banking, trading platforms, or payment gateways, affecting business continuity and customer experience
- Regulatory Penalties: A cyber breach sustained by an FSI can lead to heavy fines, operational restrictions, or loss of licenses for non-compliance with strict regulations regarding data security and privacy
- Reputational Damage: A cyberattack can severely harm your FSI’s reputation, resulting in a loss of customer trust, client attrition, and negative media coverage
Business interruption is now the main cost driver for 57% of cyber insurance claims globally, particularly for companies that depend on IT systems and cloud services.
How Vendor and Contract Lifecycle Management Can Help Mitigate Cyber Risks
According to the World Economic Forum, approximately 73% of financial services firms are tightening security checks on vendors in response to escalating cyber threats tied to third-party integration.
However, despite this increased scrutiny, many FSIs still rely on manual processes to manage their vendor relationships and contracts, leaving them vulnerable to cyber risks that could be minimised through a more structured, automated approach.
A vendor and contract lifecycle management (VCLM) platform with third-party risk management (TPRM) features is crucial in helping your business mitigate cyber risks throughout your supply chain.
Here are the ways a VCLM platform and dedicated processes contribute to reducing cyber risk:
Vendor Risk Assessment During Onboarding
- Cybersecurity Due Diligence: Vendor onboarding workflows and integrated risk assessment tools allow your business to conduct comprehensive cybersecurity due diligence, assessing each vendor’s security protocols, certifications (e.g., ISO 27001, SOC 2), history of breaches, and compliance with regulatory standards like GDPR and PCI DSS. Third-party risk intelligence feeds add real-time monitoring of vendors’ cybersecurity postures, helping you to detect red flags early and strengthen initial evaluations
- Risk-Based Vendor Categorisation: By assigning risk scores to vendors based on their access to sensitive data and the criticality of their services, you can prioritise high-risk vendors for additional scrutiny and enhanced monitoring. For example, a cloud service provider that stores customer data would be subject to more stringent cybersecurity checks than a lower-risk vendor.
Including Cybersecurity Clauses in Contracts
- Breach Notification and Liability: Contracts should include clear provisions outlining the vendor’s responsibilities in the event of a cyber incident. This could cover immediate breach notifications, remediation actions, and financial liabilities if the vendor's systems are compromised, which could lead to a data breach or disruption of services. Automated contract alerts ensure your business is updated on these obligations and can enforce cybersecurity standards
- Contractual Obligations for Security: VCLM enables you to embed specific cybersecurity requirements into your vendor contracts. These clauses can mandate security measures such as data encryption, secure storage, regular security audits, and compliance with industry standards. With OCR search, you can quickly locate and verify specific clauses across your contract repository, ensuring that security obligations are consistently included and that any gaps in compliance are swiftly addressed.
- Streamlined Cybersecurity Checks: VCLM platforms that offer AI-powered contract summaries streamline cybersecurity checks with condensed overviews of critical security clauses and obligations. Instead of manually reviewing each contract, stakeholders can rely on AI summaries to identify mandated cybersecurity protocols, such as encryption standards, audit frequency, or response time in case of a breach.
Ongoing Monitoring of Cyber Risks
- Automated Monitoring Tools: Advanced VCLM platforms can integrate with third-party risk monitoring tools that track vendor cyber-related activities in real-time, flagging potential vulnerabilities or suspicious behaviour. For example, if a vendor’s security rating drops or a new vulnerability is discovered in their system, your business will be alerted and can take action to mitigate the risk
- Continuous Risk Assessment: TPRM facilitates ongoing monitoring of a vendor's cybersecurity performance throughout the relationship. This continuous monitoring includes tracking changes in the vendor’s security posture and compliance with regulatory requirements.
Incident Response and Disaster Recovery Planning
- Joint Incident Response Protocols: VCLM and TPRM ensure that incident response plans are clearly defined and agreed upon in contracts. In the event of a cyberattack affecting a vendor, you and the vendor can collaborate on rapid containment and recovery efforts, reducing the damage caused by the breach
- Vendor Disaster Recovery Plans: Comprehensive VCLM processes ensure vendors have appropriate disaster recovery and business continuity plans, aligned with your overall risk management strategy. This is particularly important for critical vendors whose services are integral to your institution's operations.
Ensuring Regulatory Compliance
- Regulatory Oversight and Compliance Monitoring: A VCLM platform helps you to ensure that vendors comply with relevant cybersecurity regulations, such as GDPR, PCI DSS, and FFIEC guidelines. These systems track compliance status, certification renewals, and audit reports, helping you avoid penalties for vendor non-compliance
- Right to Audit Clauses: Contracts managed through VCLM can include provisions for FSIs to audit a vendor’s cybersecurity practices, either periodically or in response to a security incident. This helps to ensure that vendors maintain high cybersecurity standards throughout the engagement.
Vendor Offboarding and Data Security
- Post-Contract Monitoring: The right platform supports continued monitoring of former vendors, especially when sensitive data or intellectual property remains temporarily with the vendor. OCR search helps locate clauses related to data retention, while AI summaries provide clear timelines and obligations around data handling, reducing residual risks linked to offboarded vendors
- Secure Data Handling During Offboarding: When terminating a vendor relationship, VCLM ensures that offboarding processes include securing or deleting sensitive data held by the vendor. This reduces the risk of data exposure after the relationship ends.
Managing Subcontractor Risks
- Transparency into Subcontractors: Financial institutions often work with vendors who subcontract services to other providers. TPRM helps you gain visibility into the subcontractors involved and ensures they are held to the same cybersecurity standards as the primary vendor
- Managing Fourth-Party Risks: TPRM processes can be designed to track the cyber risk associated with subcontractors or fourth parties, reducing the risk of indirect cyber threats through the extended vendor network.
Cybersecurity Awareness and Training for Vendors
- Vendor Training and Awareness Programs: VCLM can require that vendors undergo regular cybersecurity training to stay informed of evolving cyber threats and best practices. This ensures that vendors remain vigilant and proactive in protecting sensitive financial data
- Collaborative Security Efforts: You can use TPRM information to collaborate with vendors on cybersecurity improvements, including shared threat intelligence and joint efforts to enhance security measures.
Cybersecurity Performance Metrics
- Monitoring Service Level Agreements (SLAs): VCLM platforms ensure that cybersecurity-related SLAs, such as response times during incidents or audit compliance timelines, are monitored and enforced. This ensures that vendors are accountable for meeting agreed-upon security standards
- Tracking Vendor Cybersecurity Performance: TPRM systems can measure vendors’ cybersecurity performance through real-time third-party services that provide cybersecurity ratings or scoring based on a vendor’s exposure to threats, historical breaches, or vulnerabilities. A decline in these metrics signals that a vendor may need increased scrutiny or corrective action.
Risk Mitigation through Cyber Insurance
- Third-Party Cyber Insurance: Contracts managed via VCLM can require vendors to carry cyber risk insurance. This helps mitigate financial risks associated with vendor-related data breaches or other security incidents. FSIs can also track vendor insurance policies to ensure they are up to date and provide adequate coverage.
Wrap-up
Cyber risk monitoring is essential for financial services institutions due to the high-value data they manage, the complexity of their vendor networks, and the regulatory and criminal pressures they face.
Your institution must incorporate vendor and contract lifecycle management and robust third-party risk management to mitigate cyber risks effectively.
By embedding cybersecurity requirements into vendor contracts, conducting thorough risk assessments, and implementing real-time monitoring solutions, you can protect your assets, maintain regulatory compliance, and ensure the ongoing security of your operations.
In an industry where trust and reliability are paramount, prioritising cybersecurity risk monitoring is a strategic necessity for long-term success.
If you’d like to hear about how Gatekeeper can assist with cybersecurity risk monitoring, don't hesitate to get in touch with us.
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