The Vendor Vulnerability Factor: Third Party Risks in NBFC Cybersecurity

Introduction

Having spent enough time in cybersecurity, one thing I can say for sure is that your security is only as strong as your weakest link. And that weakest link? More often than not, it’s that third-party vendor you rarely think about.

Non-Banking Financial Companies (NBFCs) often become the prime target for cybercriminals. They hold sensitive financial data but lack the expansive budgets for security that major banks have. Even stellar organizations can falter due to a vendor’s mistake.

I’ve seen this happen multiple times. Just last year, while working with an NBFC who believed they had a strong security posture, issues were revealed upon reviewing their third-party relationships. Vendors with lax security policies created vulnerabilities.

This isn’t just limited to NBFCs. I recently attended DefCon, where supply chain cybersecurity was a significant topic of discussion. Let’s explore this further.

The Importance of a Cyber Supply Chain Risk Management Capability

You can secure your infrastructure as thoroughly as possible, but if your software provider, cloud service, or even an HVAC contractor has weak security protocols, your defenses may still fail. A breach of anyone with access to your systems effectively becomes a breach of your organization.

Examples

• Target’s 2013 breach — exploited through an infected HVAC vendor.
• SolarWinds attack — hackers injected malicious code into IT management software updates, compromising thousands of organizations.
• A recent bank breach — attackers exploited a vulnerable third-party API for financial data access.

The real challenge for NBFCs lies in their lack of a third-party risk assessment process. Many assume that vendors have robust security measures, which is a costly mistake.

Case Studies — Third-Party Vulnerabilities Resulting in Breaches

Case 1: The Third-Party API That Leaked Customer Data

Last year, a loan processing system integrated with a third-party API resulted in a significant data breach for an NBFC. The audit revealed that the API provider stored credentials in plain text. Criminals leveraged this vulnerability to access customer loan data, leading to large-scale identity fraud.

Lesson learned: Never assume your vendors are monitoring their security adequately. Always demand regular audits.

Case 2: The Cloud Storage Misconfiguration Nightmare

An NBFC using a third-party cloud backup provider experienced a breach when the vendor misconfigured a public S3 bucket. Transaction logs were suddenly exposed publicly, creating serious privacy concerns. Organizations must hold third parties accountable for securing storage configurations.

Case 3: The Supply Chain Compromise Attack

An NBFC relying on billing software became compromised when a developer reused a compromised password for a software provider. Malicious code was injected into a software update, unwittingly installing malware on all affected NBFC systems. The delay in discovering this breach heightened its impacts.

Strengthening Your Third-Party Risk Management

How can NBFCs effectively defend against third-party risks? Here’s what I recommend:

1. Vendor Risk Assessments — No Excuses

Conduct security assessments for each vendor before signing contracts. Ask questions such as:

• Are they using multi-factor authentication (MFA) for access?
• What data protection measures (e.g., encryption, tokenization) do they have?
• What is their incident response plan in case of a breach?
• Have they undergone penetration testing within the last year?
• Do they follow zero trust principles?

2. Security Clause Contracts

Ensure that cybersecurity is addressed in vendor contracts. Include clauses for:

• Security audits every 6 or 12 months
• Detailed incident reporting requirements
• Compliance with standards like ISO 27001, PCI DSS, and RBI guidelines

3. Vendor Monitoring on an Ongoing Basis

Security is an ongoing process. Implement:

• Regular vendor environment reviews
• Network traffic monitoring for third-party implementers
• Threat intelligence monitoring for vendor-related compromise indicators

4. Introducing Zero Trust for Vendors and Suppliers

Adopt zero-trust architecture to mitigate risks. Key principles include:

• Restrict full network access for vendors
• Enforce just-in-time access and revoke access immediately after use
• Apply least privilege principles to vendor access

5. Penetration Testing with Vendor Inclusion

Penetration testing can identify vulnerabilities. Include activities such as:

• Testing vendor APIs for weaknesses
• Red team simulations involving vendor-compromised scenarios
• Maintaining separate audit logs to detect unauthorized vendor activities

Regulatory Security Frameworks That Assist in Driving Third-Party Risk

Leverage established frameworks to address third-party risks:

NIST Cybersecurity Framework (CSF)

• Guidance for managing third-party risk
• Emphasis on continuous vigilance
• Comprehensive supply chain security guidelines

ISO 27001

• Enforce vendor risk compliance
• Secure data handling policies
• Structured risk assessment methodologies

RBI Guidelines for Cyber Security in NBFCs

• Mandatory cyber resilience testing for third-party entities
• Vendor compliance with data localization and breach notification regulations

Key Takeaways for NBFCs

NBFCs should prioritize the following measures to enhance cybersecurity:

• Conduct third-party risk assessments prior to contract signing
• Insist on regular vendor security audits
• Adopt zero trust principles for vendor access
• Continuously monitor vendor activity for security risks
• Perform penetration testing, especially for third-party integrations

With increasingly complex cybersecurity threats, NBFCs cannot afford weak links in their supply chain. Secure your third-party relationships immediately!

Final Thought: How Strong Is Your Security If Your Vendors Are Weak?

Having been exposed to cybersecurity since the 90s, I’ve seen firsthand how poor security hygiene at any point in the supply chain can have devastating effects. The threat landscape for NBFCs continues to evolve, and breaches often originate from weak third-party links.

Nothing is more damaging than losing both customer data and trust. NBFCs must take proactive steps to mitigate vendor risk. Lock down your third-party relationships before it’s too late.