The New York State Department of Financial Services (DFS) recently released a report finding significant potential cyber security vulnerabilities with banks’ third-party vendors, which are relied on for a broad-range of services and often have access to a financial institution’s information technology systems, providing a potential point of entry for hackers. Among other findings, which were based on a survey of 40 banking organizations, including many of the largest institutions the DFS regulates, the report revealed that:
- Nearly 1 in 3 (approximately 30 percent) of the banks surveyed do not require their third-party vendors to notify them in the event of an information security breach or other cyber security breach;
- Fewer than half of the banks surveyed conduct any on-site assessments of their third-party vendors;
- Approximately 1 in 5 banks surveyed do not require third-party vendors to represent that they have established minimum information security requirements. Additionally, only one-third of the banks require those information security requirements to be extended to subcontractors of the third-party vendors; and
- Nearly half of the banks do not require a warranty of the integrity of the third-party vendor’s data or products (e.g., that the data and products are free of viruses).
The DFS’ Press Release announcing the report also noted that it is in the process of conducting a similar survey regarding the cyber security of third-party vendors at the insurers it regulates, and expects to put in place higher cyber security standards for vendors providing services to insurance companies.
Notably, third-party vendors are often exploited by hackers to gain access to an organization’s systems. We previously reported on an action filed by Travelers Casualty and Surety Company of America (as a subrogee and assignee of its insured, Alpine Bank) for breach of contract and negligence against a web designer, Incognito Studios, which, according to Travelers, negligently allowed hackers access to Alpine Bank’s website through lax internet security on the server where the website was hosted, and we strongly advise all organizations to have robust third-party vendor assessment processes and ongoing cyber security assessment surveys as part of their cyber security plans. Based on the responses that the DFS received, it concluded that banking organizations appear to be working to address the cyber security risks posed by third-party service providers, although progress varies depending on the size and type of institution.