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A year ago, I would have laughed if you had told me that I’d be spending my days worrying about vendor compliance audits, regulatory frameworks, and risk assessments.
As CEO of Bridgepointe, my priority has always been empowering our customers to achieve their business goals through technology—not policing their vendors.
But here’s what I’ve learned: third-party risk is not an “IT problem.” It’s a business risk.
If you work in technology consulting like I do, you quickly realize that vendor compliance—or lack thereof—has a direct impact on your clients’ security, finances, and even their reputations.
I’ll admit that at first, I didn’t fully grasp how serious these risks were. Then I saw what happens when companies don’t have a firm grip on their third-party relationships. It wasn’t pretty.
The First Wake-Up Call: One Vendor Almost Cost a Client Millions
One of the first lessons I learned came from a financial services client. They were laser-focused on internal security but hadn’t applied the same scrutiny to their third-party vendors.
One of their SaaS providers, a seemingly reputable firm that handled customer transactions, suffered a breach. The attackers got access to sensitive client data, and suddenly this client was on the hook for regulatory fines, lawsuits, and a PR disaster.
The kicker? They had done an initial security assessment when they onboarded the vendor but never followed up.
However, their provider’s security practices had deteriorated over time, but no one noticed until it was too late.
That incident made me realize that third-party risk isn’t a one-and-done evaluation—it’s an ongoing process. Even the best vendors can become liabilities if they’re not continuously monitored.
I began exploring third-party risk management, compliance frameworks, and regulatory standards. Initially, it was overwhelming—risk matrices, due diligence audits, vendor tiering. None of it came naturally to me. I’m not a compliance officer; I’m a CEO.
I remember sitting through a three-hour webinar on GDPR compliance, taking furious notes, and then realizing that I still didn’t fully understand how third-party vendors fit into data protection laws.
The more I learned, the more I realized how easily companies can get blindsided.
What Exactly Is Third-Party Risk Management (TPRM)?
At its core, TPRM is about identifying, assessing, and controlling risks from working with outside organizations—suppliers, vendors, contractors, service providers, and partners.
These risks can take many forms:
- Cybersecurity Risks: Data breaches, system vulnerabilities, and lack of security controls in vendor environments.
- Compliance Risks: Non-adherence to industry regulations like GDPR, HIPAA, or PCI-DSS.
- Operational Risks: Vendor failures that disrupt your supply chain or service delivery.
- Reputational Risks: Being associated with a third party that engages in unethical business practices.
- Financial Risks: Fraud, contract mismanagement, or unstable vendors going bankrupt.
Here’s the scariest part: many of these risks aren’t obvious when you first sign a contract with a vendor. They emerge over time, and they can blindside you if you’re not actively monitoring them.
The ChatGPT Dilemma: AI Tools and Third-Party Risk
Recently, I had a client—a mid-sized healthcare company—who faced an unexpected compliance issue with AI tools. Their marketing team had started using ChatGPT to generate patient communication materials.
Sounds harmless, right? Here’s what they didn’t consider:
- Healthcare organizations are bound by HIPAA regulations, which require strict controls over how patient data is handled.
- ChatGPT and other AI tools process and store user inputs, meaning sensitive patient data could have been inadvertently shared.
- The AI vendor hadn’t provided clear documentation on how data was stored, used, or deleted.
This was a classic case of a well-meaning team introducing risk without realizing it. The marketing team was trying to speed up content creation, but because there was no third-party vetting process, they had unknowingly exposed the company to regulatory violations.
We worked quickly to implement an AI governance policy, restricting what kind of data employees could input into AI models and requiring vendor security reviews before adopting third-party AI tools.
It was a close call, and it showed me that even seemingly low-risk tools can introduce serious compliance issues if they’re not properly managed.
Why Non-Compliance Is a Bigger Risk Than You Think
Many IT leaders assume that compliance is just about checking boxes, it’s much more than that. Regulatory frameworks exist to protect businesses, customers, and data.
Non-compliance can lead to:
- Regulatory Fines: Violations of data protection laws like GDPR can result in fines up to 4% of annual global turnover—a financial nightmare.
- Lawsuits and Legal Exposure: A security breach caused by a vendor’s negligence could mean lawsuits from customers, partners, and even employees.
- Business Disruptions: A critical supplier not meeting compliance standards could halt operations, leading to revenue loss.
- Reputational Damage: Trust is hard to build and easy to destroy. One bad vendor can stain your brand permanently.
Consider this: 60% of data breaches originate from third-party vendors. You could have the best internal cybersecurity measures in place, but if your vendors don’t? You’re still vulnerable.
Financial Services Compliance Lessons from Shadow IT
One of the most eye-opening compliance risks I encountered came from a medium-sized financial services firm.
They were growing fast, hiring aggressively, and streamlining operations. Like many companies, they needed a collaborative project management tool to help teams stay on track.
Instead of going through IT procurement, a department head took the initiative and set up a free version of a popular project management application. It was simple, easy to use, and—most importantly—free. Within a few months, multiple teams were using it for tracking client projects, internal workflows, and even sharing confidential financial reports.
What they didn’t realize was that the freeware version of this tool had no enterprise security features:
- No compliance certifications.
- No centralized admin controls.
- No encryption for stored files.
- No audit logs or user activity tracking.
It wasn’t until a routine regulatory audit that the problem came to light. The auditors discovered that sensitive client financial data had been shared on a platform that didn’t meet any compliance standards.
Since the company operates in the financial sector, they’re subject to PCI DSS and SEC compliance regulations, which require strict data access controls, encryption, and record-keeping.
This seemingly innocent use of a free productivity tool now exposed the company to massive non-compliance penalties. The potential consequences were severe:
- Regulatory fines for not protecting sensitive client data.
- Legal liability if a breach occurred.
- Loss of client trust and damage to their reputation.
The worst part of this situation is that the company’s IT department had no idea this software was even in use.
This was a classic example of Shadow IT, where employees adopt unapproved applications without considering compliance risks. And it happens more often than you’d think.
How to Build a Proactive TPRM Strategy
By now, you’re probably wondering: What can we do to stay ahead of these risks?
Here’s what I’ve learned:
1. Conduct Risk Assessments Before Signing a Contract
Never assume a vendor is secure just because they say so. Assess their cybersecurity practices, financial stability, and compliance posture before onboarding them.
2. Classify Vendors by Risk Level
Not every third party presents the same level of risk. Categorize vendors into high, medium, and low risk based on:
- Access to sensitive data.
- Business-critical functions.
- Regulatory impact.
3. Establish Strong Contractual Agreements
Contracts should include clear compliance and security expectations, including data protection clauses, breach notification requirements, and audit rights.
4. Continuously Monitor Vendor Compliance
TPRM isn’t a one-and-done process. Regularly audit and reassess vendors to ensure they’re maintaining compliance.
5. Have a Contingency Plan for Vendor Failures
What happens if a critical vendor suffers a breach or goes out of business? Have a backup plan.
Final Thoughts: TPRM Is a Business Imperative
I never set out to become an expert in third-party risk, but the more I learned, the more I realized how critical it is to every part of a business.
At Bridgepointe, we now help our clients assess vendor risks, build compliance strategies, and help vet their third-party relationships so they don’t become liabilities. If you’re ready to get proactive about TPRM, let’s talk.
Because in today’s world, trust is earned, but risk is everywhere.
Shadow SaaS and Gen AI Apps: Are You Protected? Learn More in This Exclusive Webinar
Join us for an exclusive cybersecurity webinar on March 19th.
During Shadow SaaS and Gen AI Apps: The Silent Cybersecurity Threats IT Leaders Are Missing you’ll hear from leading security vendors about the hidden risks of third-party SaaS and the practical steps you can take to protect your organization.
Hear from five leading cybersecurity experts on:
- Why SaaS source code and APIs are the perfect attack vectors.
- How to block unauthorized access and plug security gaps.
- Key compliance considerations for third-party software and APIs.
- Why backup and disaster recovery for SaaS vulnerabilities is more complex than you think.
