Third Party Security Risks: A New Approach

Introduction

I’ve been working in this space for over 20 years — long enough to watch threats evolve from basic worms (hi there, Slammer) to highly sophisticated supply chain attacks that keep CISOs up at night. Big or small, stock broking firms are on the target list. And here’s the kicker: the vast majority of them miss one of the most significant threats in their infrastructure.

Associated third-party software and integrations.

Many companies believe their security only covers firewalls, endpoint protection, and MFA. Still, what gives with the third-party trading platform API? Or the company that owns back-office automation? When they are breached, you are breached. I’ve witnessed this myself, and believe me — it’s a mess when it happens.

Let’s break it down.

The Hidden Entry Points: Supply Chain Vulnerabilities

Then again, most stock broking firms don’t build everything in-house (who does that these days?). They integrate.

• Trading APIs
• Algo trading platforms
• Software for clearing and settlement
• Cloud-based analytics tools
• KYC/AML Screening Services For Customers

Here’s the catch: Every external vendor you integrate with — every software dependency you add — is another potential weak link. And weak links are where attackers thrive.

And they’ll hit up small vendors with weaker-seamed security posture and use them as a jumping off point. It’s a whole lot easier than trying to hit a bank or an actual brokerage firm directly.

How These Integrations Are Exploited By Attackers:

1. Compromised APIs: An attacker compromises a third-party API (because it was not properly secured) and uses stolen tokens or credentials to pivot into the broker’s network.
2. Software Supply Chain Attacks: A backdoor “updates” their trusted vendor (think SolarWinds) and hooks every broker using their wares.
3. Default Credentials & Hardcoded Secrets: Some vendors continue to ship software with default logins for admins. (Yes, really.)
4. Shared Infrastructure Attacks: Attackers move laterally between customers if vendor’s multi-tenant cloud platform is misconfigured.

And don’t even get me started on insider threats — a vendor employee with privileged access getting compromised (or going rogue) is every bit as dangerous as an outsider.

Case Studies: When Third-Party Security Goes Wrong

I mean, I don’t want to name names, but I’ve interacted on three separate occasions this year alone with third-party integrations that have led to massive security incidents in stock broking firms.

Case 1: Our Trading API Nightmare

A brokerage house had a third-party trading platform closely coupled with their core system. No bells and whistles — merely a standard API connection. Until attackers got in.

• The vendor used weak API security (tokens didn’t rotate correctly).
• The attack allowed the attackers to post fake trades for users.
• Result? Financial fraud + regulatory headaches = disaster.

Case 2: The Back-Office Tool Turned Entry Point

A clearing firm used a third-party reconciliation tool — just some simple automation software. Except … it was using old Java.

• Umoja hackers used an unpatched vulnerability to get in.
• Because it was connected to internal databases, they pivoted and exfiltrated sensitive customer data.
• The firm had to alert regulators and customers, and manage the PR damage.

Case 3: The Vendor Who Over-Shared

This one really bothered me. A broker that was integrated with a cloud-based KYC service (known for holding customer data). The vendor got breached.

• The brokers never got anywhere near the brokerage’s network.
• And user data was stolen directly from the misconfigured cloud storage used by the vendor.
• The brokerage still needed to notify affected customers — even though it wasn’t their breach.

See the pattern? The risk is not always your systems. Sometimes, it’s the partners you trust.

Vendor Risk Management: What Stock Broking Firms Should Do

The thing is — third-party risk isn’t a new issue. Vendors are trusted by firms without verifying if they are secure. Stop assuming. Start verifying.

Tip: How To Tighten Third-Party Security In Your Brokerage:

1. Vendor Reviews: Ask hard questions before bringing a vendor onboard.
   • Are they SOC 2 or ISO 27001 certified? (And when was the last time they got audited?)
   • A Patching Policy — What’s their patching policy?
   • How do they manage access controls?
   • Where is customer data stored and who has access?
2. Make Security Contractual: Treat security as a non-negotiable in your vendor contracts.
   • Mandate periodic third-party penetration testing.
   • Enforce strong access controls — MFA, least privilege, etc.
   • Demand incident response SLAs. (If they’re breached, how quickly do they inform you?)
3. Secure API Integrations:
   • Implement token-based authentication with expiry policies.
   • Do not expose unrestricted API access — limit by IP, function, and transaction type.
   • Log everything. (That way, if there’s an attack, you have evidence.)
4. Ongoing Vendor Monitoring: Perform regular checks and do not forget about your vendors after the first check.
   • Periodic security reviews.
   • Automation of alerts for suspicious activity.
   • Watch out for data leakage (even if it is “outside” your network).
5. Expect the Worst: Assume a vendor will eventually get breached.
   • Have an incident response playbook in place.
   • Challenge your response through tabletop exercises.
   • Be able to detect anomalies in third-party communications.

Go Finger-On or Finger-Out With Vendor Security

One of the biggest problems I see? Brokers who trust vendor security attestation reports exclusively.

For our part, we sent them our compliance certificates. That means they’re safe, right? No.

If you don’t… There are hundreds of thousands—millions—of packages and vendors, if you entrust sensitive integrations to a vendor—each one of the codes—test it yourself.

Perform Third Party Security Audits:

• Pen test Vendor APIs yourself (with permission).
• Look at their network segmentation — do they keep customer environments separate?
• Look into their incident handling process—do they perform root cause analyses following problems?
• Verify their encryption — are they encrypting data both in transit and at rest?

In The News: Securing Expanding Third-Party Services

• Never trust blind certifications. Ask for real security proof.
• Verify API security. Use token rotation and strict authentication.
• Track third-party engagement activity. Anomalies = canaries in coal mines = early warning signals.
• Assume vendors will get pwned. Have a backup plan.

The risk of third parties isn’t going to disappear. If anything, it’s getting worse as more firms adopt integrated solutions — cloud-based, or not — without really considering risks.

Stock broking firms are lucrative targets and attackers will exploit any weak link available to them. Make sure it’s not a vendor you didn’t vet properly.

Conclusion

Just returned from DefCon and let me tell you — watching live hardware attacks in the village was a harsh reminder that security is more than what you can control. It’s about everything around it. Your security is not distinct from third-party security. It is your security.

Now go audit your vendors.