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Challenges in Managing Fourth- and Nth-Party Risks and Solutions

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Managing third-party risks can be a complex task. With a changing regulatory and technological landscape, even experienced professionals find it challenging to stay on top of evolving risks. In addition to these difficulties, there are also risks associated with fourth parties – the vendors of your vendors. These additional parties can add another layer of complexity to third-party risk management (TPRM).


Managing fourth and nth parties isn’t the easiest skill to master, but one that’s necessary to gain a broader understanding of your organization’s risk landscape. The good news is that there are a few best practices that can help. Once you know how to identify, assess, and manage your fourth and nth parties, your overall TPRM program will be much more effective.

 

Challenges in Managing Fourth- and Nth-Party Risks

Fourth parties are the vendors that have a direct contract with your third parties, while nth parties are essentially all the vendors of your fourth parties and beyond. As you can imagine, these degrees of separation can create many challenges when it comes to managing risk, such as:

No choice

With few exceptions, your organization generally can’t choose your fourth or nth parties. In some cases, your third parties may have a different risk appetite than your organization regarding a particular vendor. This might create a situation where you decline working with a third party because of its vendor inventory.

No direct relationship

No contract

No due diligence 

 

Solutions to Managing Fourth- and Nth-Party Risks

When your organization has no direct relationship and no leverage to perform risk management activities, it can seem almost impossible to manage fourth- and nth-party risks. However, there are still practices to implement to mitigate the risks. The most effective strategy is to manage risk through your third parties, with whom you do have leverage.


Here are five solutions to manage your fourth and nth parties:


1. Require Transparency

Third parties should be required to disclose which of their vendors have an impact on your organization. These vendors might access sensitive information or be essential to your third party’s operations. Your organization should essentially identify your third party’s critical vendors. Fortunately, these critical vendors will be listed in the third party’s SOC report. Focusing on critical fourth parties is a much easier solution than trying to create a complete list of every fourth and nth party.

2. Review TPRM practices

3. Leverage contracts

4. Manage any issues

5. Reconsider the relationship


Managing fourth- and nth-party risk can be complex. While you may not have a direct relationship or contract with fourth parties, it’s crucial to ensure your third parties are transparent about their third-party relationships and have robust third-party risk management practices.


Your organization needs documented evidence from your third parties of fourth-party risk assessments, due diligence, and monitoring to ensure your third parties are managing their vendors safely. This visibility will give your organization confidence in the appropriate management of fourth-party vendors.

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