Introduction
In today’s global digital landscape, third-party vendors are indispensable assets, enabling companies to access specialised skills, streamline operations, and drive efficiency through outsourcing. However, this operational advantage comes with a significant responsibility: Data Controillers are mandated to carry our Third party Due Diligence ensuring these third-party relationships don’t inadvertently expose your organisation to heightened data privacy risks, which can result in both legislative and reputational damage. With data protection laws like the GDPR imposing stringent requirements on companies handling personal data, incorporating a robust due diligence process for third-party relationships is not only essential but is a core component of lawful data processing.
This article explores:
- The reputational risks of third-party data breaches
- GDPR’s expectations for third-party risk management
- A structured approach to risk management for third-party compliance, including Legitimate Interest Assessment (LIA)
Third-Party Breaches and Reputational Damage
Data breaches originating from third-party vendors can cause far-reaching reputational harm to an organisation, often putting hard-won trust at risk. Consumers are becoming increasingly vigilant about data protection standards and are quick to penalise companies that fail to prioritise their privacy. According to a survey involving 7,500 consumers from France, Germany, Italy, the U.K., and the U.S.:
- 69% of respondents said they would consider boycotting a company that showed insufficient integrity in protecting customer data.
- 62% indicated they would hold the company – rather than the third party – accountable if their data were compromised in a breach.
These figures demonstrate a consumer expectation that organisations will take the necessary steps to protect data regardless of any third-party involvement, underscoring the importance of rigorous third-party due diligence. Given the costly consequences of reputational damage, organisations must ensure that they have strong measures to mitigate these risks.
GDPR Compliance and Third-Party Risk Management
Under the GDPR, data controllers are responsible for ensuring their data processors (including any third-party vendors handling personal data on their behalf) adhere to the regulations’ stringent requirements. When entering a relationship with a third-party processor, a data controller must consider factors such as:
- The sensitivity and nature of personal data processed by the third party
- The volume of data shared
- The purpose of processing
- The technology or methods used by the third party, especially if innovative or potentially risky
To further ensure lawful processing, organisations should conduct a Legitimate Interest Assessment (LIA), a formal evaluation process that verifies whether a legitimate interest can be a valid legal basis for processing data. This process, often referred to as a “Legitimate Interest Assessment GDPR,” is crucial for assessing potential privacy impacts on individuals and demonstrating accountability.
Strategies to Mitigate Third-Party Risks
To minimise third-party risks under GDPR, organisations can implement several key strategies:
- Achieve GDPR compliance within your organisation to serve as a solid foundation for working with third parties.
- Conduct rigorous due diligence before entering into any relationship with a third party. This includes evaluating their data protection policies and verifying their level of GDPR compliance.
- Establish data processing agreements (DPAs) with every third-party processor, a requirement under GDPR that clarifies responsibilities and expectations.
- Perform regular audits to assess the security controls and data protection practices of third-party vendors.
- Incorporate risk management protocols into contracts to ensure all parties understand and are committed to protecting personal data.
Implementing a Risk Management Process for Third-Party Compliance
With 63% of data breaches reportedly involving third-party vulnerabilities, according to a Soha Systems survey, implementing a robust risk management framework is essential to maintain consistent compliance. A comprehensive risk management process generally includes the following five phases:
Phase 1: Planning
Management develops clear, actionable plans to guide the evaluation and management of third-party relationships. This includes setting standards for privacy and data protection that align with organisational and regulatory requirements.
Phase 2: Due Diligence and Third-Party Selection
In this critical phase, due diligence is performed on all potential third-party vendors before establishing any formal relationship. This assessment should include an LIA when appropriate, ensuring that a legitimate interest is a valid basis for data processing, and confirming the vendor’s compliance with GDPR standards.
Phase 3: Contract Negotiation
Contracts should outline specific data protection obligations, and management or legal counsel should review these terms to mitigate risks. The contract must include clear guidelines on data use, storage, access, and destruction and specify how both parties will manage compliance obligations.
Phase 4: Ongoing Monitoring
A continuous monitoring program helps ensure that third parties comply with data protection standards over time. Regular reviews allow organisations to respond swiftly to any changes in the third party’s data processing practices that could elevate risk.
Phase 5: Termination and Contingency Planning
Adequate contingency plans address the steps to be taken if the relationship must end, ensuring that data can be securely removed or transferred in line with GDPR obligations. This phase also includes preparations for handling data breaches or compliance issues that could occur post-contract termination.
Conclusion
Formiti’s Outsourced DPO Service: Streamline Third-Party Due Diligence
Given the growing complexities of GDPR compliance, many organisations find significant value in outsourcing their data protection operations. Formiti’s outsourced Data Protection Officer (DPO) service can expertly manage your third-party contracts and due diligence processes, saving you valuable time and resources. Our team helps you implement essential measures, including LIAs and ongoing risk assessments, so you can focus on what you do best.
Contact us today for a one-hour, obligation-free consultation and discover how our expertise can fortify your data protection framework, enhance compliance, and safeguard your reputation.