Continuous third-party monitoring is a vital part of third-party risk management, but it is often neglected. Onboarding a third party requires a lot of effort, such as due diligence, vendor selection, and contract management.
However, some organizations only review their third parties once a year, which can leave them vulnerable to new or emerging risks. This blog will explain how to monitor your third parties effectively in-between due diligence cycles and throughout the year, and what risks your organization can avoid by doing so. This is not only a best practice, but also a regulatory requirement within many industries.
Areas to Continuously Monitor Third Parties
You need to keep track of various aspects of your third parties' risk profiles to understand the overall risk they present to your organization. Your continuous monitoring strategy should include the following items:
- Performance: By monitoring your third party’s performance, you can verify that they comply with the expected service level agreements (SLAs).
- Adverse media, negative news and consumer complaints: Pay attention to how your third parties are perceived in the public sphere. Any news of consumer complaint filings or other negative reports about a third party can endanger your organization’s reputation.
- Financials and business health: Keep up to date with your third party’s financial health by monitoring their quarterly filings if it's a public company. If it's not a public company, think about using financial monitoring alert services.
- Cybersecurity incidents: Make sure your third party follows any data breach notification procedures.
- Issues or changes: Continuous monitoring alerts you of any third-party issues or changes to its internal processes or control environment.
- Risk-based assessments: The frequency of your periodic risk assessments should match the level of inherent risk. That is, third-party risk that exists without any measures to reduce or control the risk. Don’t change your monitoring frequency to suit the residual risk.
How Continuous Third-Party Monitoring Helps Mitigate Risks
Continuous third-party monitoring is a proactive way to ensure your third-party vendors are meeting your expectations and standards. By regularly assessing their performance, you can identify and resolve any potential issues before they become bigger problems.
Some of the risks you can avoid or minimize with continuous third-party monitoring are:
- Compliance: Protect yourself from compliance risk by ensuring third parties follow proper employee training, ethical marketing practices, and customer data protection.
- Reputation: Safeguard your organization’s reputation by avoiding third-party vendors that have unresolved consumer complaints, violate environmental and consumer laws, or undergo frequent management changes.
- Information security: Enhance your information security by detecting and addressing any vulnerabilities in your third party's physical and cyber environment that could lead to cyberattacks and data breaches.
- Financial and business health: Ensure your third-party vendor’s reliability and quality by monitoring their financial stability and avoiding third parties that face regulatory fines, litigation, or decreasing revenue.
How to Achieve Third-Party Continuous Monitoring Success
To implement a successful third-party continuous monitoring strategy, you should consider these four tips:
- Use automation: Automating your monitoring process can reduce the chances of human error or oversight. Consider using third-party risk intelligence and alert services to track your supplier's or third-party vendor's risk profile continuously.
- Plan for remediation: Have a clear and effective plan to address or resolve any early warning signals, issues, or problems detected during monitoring.
- Communicate with stakeholders: Report any new or emerging issues or possible indications of risk to senior management and the board regularly and transparently.
- Document everything: Documentation is crucial for monitoring your third parties and remediating issues. Without proper documentation, your monitoring efforts will have little value.
Annual performance review cycles are essential for an effective third-party risk management program. However, continuous monitoring is necessary to stay aware of new and emerging risks between your annual review cycles. Regulators expect organizations perform this level of oversight to ensure third-party relationships remain safe and sound.