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Third-party involvement in data breaches has doubled this year from 15 percent to nearly 30 percent. In response, many organizations have sharpened their focus on third-party risk management, carefully vetting the security practices of their vendors. However, a critical gap remains that many organizations overlook: fourth-party risk.
The silent threat of fourth-party vendors
Most organizations focus only on the vendors directly in their orbit, while neglecting to dig one step deeper into who those vendors rely on to deliver their services.
Fourth-party risks are particularly challenging because they’re harder to see. You may not even know they exist unless your vendor discloses them. Regardless, regulators and customers will hold your organization accountable if a fourth-party vulnerability leads to a data breach or operational disruption.
The reality is that your most critical vendors often pose the most significant risk because they are deeply embedded in your operations and usually rely on various sub-processors to deliver services. Whichever way your vendor accesses your environment – be it through hardware, software, on-premises, legacy tech, or the cloud – can introduce risk. To manage these risks, start by following the data:
- What data is being collected and why? Understand the specific data your vendors and their sub-processors collect on your behalf, the purpose for collecting it, and whether it’s necessary for service delivery.
- Where does the data go? Map the data flows to see where your data travels across fourth parties and identify jurisdictions with weaker privacy or security laws.
- Who will access the data? Identify all entities, including sub-processors, with direct or indirect access to your data, and assess their controls.
- How long is the data retained? Determine retention and deletion practices across your vendor’s supply chain to prevent data lingering in unknown or unsecured locations.
- How is the data protected throughout its lifecycle? Evaluate encryption, access controls, and security standards your third and fourth parties use to safeguard your data.
While many organizations have taken steps to strengthen third-party risk management, focusing only on direct vendor relationships isn’t enough. Fourth-party risks often hide in plain sight within your existing supply chain security practices, creating blind spots that can undermine your overall posture.
Organizations should enforce pass-through obligations
One of the most effective strategies for managing fourth-party risk is enforcing pass-through obligations in vendor contracts. This means requiring your vendors to hold both their vendors and their vendors’ vendors to the same security and privacy compliance standards you have.
Suppose your organization requires your direct vendors to implement specific encryption standards, undergo regular security audits, limit data retention to a specified period, and report security incidents within a defined timeframe. In that case, those requirements should apply to any subcontractors your vendors engage. While maintaining fourth-party diligence seems daunting for any organization with limited resources, the burden should be assigned to third parties in vendor contracts.
What should be in every vendor contract?
Vendor access management starts with contracts rooted in these principles: follow the data, enforce accountability, and minimize residual risk. Structure your vendor agreements to:
- Disclose sub-processors: Require your vendors to disclose any sub-processors they use with access to your data or systems (as they are legally obligated under GDPR), ensuring you can track risk wherever your data flows.
- Enforce rapid incident notification: Vendors must notify you quickly if any security incidents involving their subcontractors could affect your systems or data.
- Retain audit rights: Keep the right to audit vendor and subcontractor compliance, including the ability to confirm named identities, not shared accounts.
- Control offboarding: Ensure all access expires with contract termination or inactivity to prevent lingering risks.
- Mandate pass-through obligations: Vendors must require subcontractors to meet the same security and compliance standards.
Formalizing these requirements creates a chain of accountability that significantly reduces the risk of a security incident slipping through unnoticed due to a subcontractor’s failure to meet standards. Handshake promises or exaggerated insurance coverage mean nothing if they are not enforceable.
Secure the full supply chain
To stay ahead, organizations must go beyond managing direct vendors and enforce enforceable controls that cascade down the full chain of subcontractors. By embedding pass-through obligations, tightening oversight, and taking a layered, risk-based approach, businesses can close blind spots and build a vendor ecosystem that’s resilient by design, and ready for whatever threats come next.
