Financial services

The Benefits and Challenges of Financial Services Institutions Relying on a Growing Number of Third Parties

You would be hard pressed to find an industry that has forgone more changes in recent years than the financial services industry, as the market has been flooded with new banking options that tout innovative new technologies and online-only services. .

The market is full of new options, and if a bank wants to retain its customers and attract new ones, it must evolve. To do this, many financial services organizations have turned to an increasingly diverse number of third parties (vendors, contractors, partners and affiliates) to cost-effectively access the skills necessary to meet their operational needs and remain competitive.

The use of contractors has increased, with the contractor-to-employee ratio increasing by 48% over the past 5 years, as financial institutions rely on third-party specialists to procure capabilities and equipment at a price lower than what they would get if they had to recruit internally. Often, these third parties have special skills and knowledge that make a significant difference to the value of an institution’s products and services.

Additionally, third parties help provide the geographic reach and scale an organization needs to compete in today’s highly competitive marketplace, providing additional flexibility and, if managed properly, reduced risk. operational.

While the benefits of using third parties are significant, so are the challenges they pose to your organization.

To achieve operational agility and meet consumer demands, financial services organizations must first ensure that these business opportunities match their risk appetite before committing to working with a third-party company. Organizations typically perform risk assessments on the third-party companies they are considering. Yet most organizations neglect or simply have no way to centrally track and manage the lifecycle of each third-party worker and the risk they pose to accessing the organization’s assets or network.

Collecting third-party identity data and then providing access to this vast population of extended enterprise users has always been a very complex and convoluted, inefficient, often manual, and error-ridden process. This recurring pain point has great consequences. In fact, Gartner recently reported that 30% of data breaches are the result of an insider event, and 63% of all insider events are the result of willful error or negligence.

Common mistakes financial services organizations make when managing third-party vendor identities that often lead to a third-party breach include relying on undefined and manual processes to manage access, neglecting to centrally track relationships with their third-party users and system access that they need and using a “green light/red light” approach to managing risk, rather than implementing different levels of risk with appropriate security controls designed for each level.

Misstepping your extended enterprise identities is particularly dangerous in the financial sector, where 74% of respondents in a recent Bank of England survey rated cyberattacks as the highest risk to the sector financial, ranking higher than all other sources of risk, including inflation, geopolitical incidents and the pandemic.

UK finance executives who responded that they thought their business was ‘at high risk of attack’ have doubled in this year alone, from 31% in the first half to 62% in the second. With more and more cybercriminals targeting financial services institutions, banks are beginning to realize that they are only as secure as their extended enterprise.

Learn more about how financial services institutions can successfully manage their growing extended enterprise, including the five most common third-party identity mistakes organizations make that lead to a third-party breach, by clicking here.

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