Third Party Risk Definition
When it comes to third party risk, there are a few different definitions out there.
Third party risk is “the risk that a firm takes on when it uses another organization’s products or services. This can include risks to the firm’s reputation, brand, and bottom line if the third party fails to meet its obligations, or if its products or services cause harm.” – Gartner
So now that we have a working definition, let’s take a closer look at some of the key elements of third party risk.
There are three main types of risks associated with using third parties: financial, operational, and compliance. Financial risks include things like the potential for loss of revenue if a third party is unable to meet its contractual obligations. Operational risks can arise from things like data breaches or service disruptions. And compliance risks come into play when a third party fails to meet regulatory requirements.
To mitigate these risks, it’s important for organizations to have robust due diligence processes in place for vetting and onboarding new third parties. Once a third party has been selected, organizations should also put in place monitoring and review mechanisms to ensure that they continue to meet expectations and address any changes in risk profile.
