An interconnected future: Conquering third-party risks

The growing threat of dependence

Businesses rely on third-party vendors for everything from cloud services, IT back office support, to cyber security. But this reliance comes hand-in-hand with risk.

Even though supply chain generally owns the responsibility related to setting up and managing vendors, there is a growing material importance that third parties are playing in the information technology and operational technology space. Many organizations struggle to find the needed technology expertise required to run and maintain systems, so the reliance on third parties continues to grow every year. Some organizations, especially those located in areas outside of major city centres, may see their technology simply stop operating if they are unable to rely on a dependable IT third party.

A single weak link in a supply chain or vendor network could lead to operational interruptions, financial losses, and/or reputational damage. It’s not enough that your organization protects itself from cyberthreats, regulatory compliance failures, and operational weaknesses — all your external partners need to ensure they’re protected too.

A 2024 report by MNP found there was a sharp increase in Canadian business’ reliance on third parties for technology-related services. This trend underscores the importance of regular reviews of third-party agreements, access permissions to ensure the integrity of security controls, as well as stress tests of third-party liability clauses to determine the maximum liability a third party can realistically cover.

Additionally, a 2024 benchmark report from Hyperproof revealed that 62 percent of organizations experienced a supply chain disruption due to cyber security incidents, a 13 percent increase from the previous year. 

Over the course of 2024, some Canadian institutions — particularly in the financial sector — faced increasing scrutiny over their third-party risks. The Office of the Superintendent of Financial Institutions (OSFI) raised concerns over concentration risks, warning that excessive reliance on a handful of service providers could create systemic vulnerabilities.

As businesses deepen their dependence on third parties, managing these risks is no longer an option — it’s necessary to survive.

Risks to watch

Cyber security breaches: Third-party vendors are a primary source of data breaches.

Regulatory non-compliance: Failing to align with changing regulations, include those of your third party, will result in risks associated with compliance in technology and cyber risk management

Operational disruptions: Dependence on third parties for critical services increases the risk of operational disruptions because of potential vendor failures or insolvencies. 

Data privacy violations: The mishandling of sensitive data by your vendors could lead to privacy risk and potential legal repercussions and reputational damage. 

Financial instability of vendors: The financial health of third-party vendors directly impacts their service delivery.

Supply chain vulnerabilities: Global trade disruptions demonstrate the fragility of supply chains, with third-party failures potentially impacting product availability and business operations.

Reputational damage: Working with unethical or non-compliant third parties could tarnish an organization’s reputation and stakeholder trust. 

Legal liabilities: Inadequate third-party risk management exposes organizations to legal challenges, especially when it comes to data breaches and compliance failures. 

Strategic misalignment: Partnering with an external vendor whose objectives diverge from your organization’s goals can lead to conflicts and inefficiencies. 

Over-reliance on key vendors: Concentration risk increases when businesses depend too heavily on a small number of providers.