Third-party security risks are the potential threats that arise from the interactions between an SME and its external vendors or suppliers. These threats can include:

• Data breaches: A third party may compromise the confidentiality, integrity, or availability of the SME's data by mishandling it, losing it, or leaking it to unauthorized parties. For example, a cloud service provider may suffer a cyberattack that exposes the SME's customer records or intellectual property.
• Service disruptions: A third party may fail to deliver the expected level of service due to technical issues, human errors, or malicious actions. For example, a payment processor may experience downtime that prevents the SME from accepting online transactions.
• Compliance violations: A third party may not adhere to the relevant laws and regulations that apply to the SME's industry or jurisdiction. For example, a data processor may not comply with the EU General Data Protection Regulation (GDPR) which requires adequate safeguards for personal data transfers.
• Reputation damage: A third party may tarnish the SME's image or trustworthiness by engaging in unethical or fraudulent activities. For example, a supplier may use counterfeit or substandard materials that affect the quality of the SME's products.

Third-party security risks are escalating for several reasons:

• Volume: As SMEs outsource more of their business functions to reduce costs and increase efficiency, they also increase their exposure to more third parties and their associated risks.
• Complexity: As SMEs adopt more advanced technologies and digital solutions from third parties, they also face more challenges in understanding and managing them effectively.
• Scrutiny: As regulators and customers become more aware and demanding of cybersecurity standards and practices, they also impose more pressure and penalties on SMEs for any lapses or breaches involving third parties.
• Repercussions: As cyberattacks become more sophisticated and widespread, they also cause more damage and disruption to SMEs and their stakeholders.

SMEs can mitigate third-party security risks by adopting a proactive and holistic approach that involves:

• Assessment: SMEs should identify and evaluate all their existing and potential third parties based on their criticality, scope of service, and level of access to sensitive data or systems. They should also develop a list of minimum cybersecurity requirements and obligations that vendors and suppliers must meet in order to work with them.
• Monitoring: SMEs should establish service level agreements (SLAs) with each key third party that clearly define the expectations, responsibilities, metrics, and remedies for both parties. They should also conduct regular reviews and audits with their third parties to ensure compliance and performance.
• Response: SMEs should prepare contingency plans for dealing with any incidents or issues involving their third parties. They should also communicate effectively with their internal teams, external partners, and customers about any impacts or resolutions.
• Termination: SMEs should have clear processes for ending their relationships with their third parties when necessary. They should also ensure that any sensitive data that was accessed by the third party is either securely destroyed or returned.

Third-party security risks are a top strategic risk for SMEs in 2023 as they depend more on external providers for various services. By implementing effective measures to assess, monitor, respond, and terminate their third-party relationships, SMEs can reduce their vulnerability and enhance their resilience against cyber threats.

References:

https://www.deloitte.com/global/en/services/risk-advisory/perspectives/third-party-risk.html https://www.enisa.europa.eu/securesme/cyber-tips/protect-employees/third-party-management https://www.forbes.com/sites/forbestechcouncil/2021/02/11/understanding-the-third-party-im