There’s a significant potential cyber security vulnerability that one in three banks harbors – and it has to do with banks' third-party vendors. And yes, the risk also runs to bank data in the mortgage and mortgage finance space.
Banks rely on third-party vendors for a broad-range of services – such as law firms that provide them with legal advice or even companies contracted to run their HVAC systems.
Those third-party firms often have access to a financial institution’s information technology systems, providing a potential point of entry for hackers, the New York Department of Financial Services says.
Among other findings, the NYDFS report uncovered that nearly one in three banks surveyed do not require their third-party vendors to notify them of cyber security breaches. In the coming weeks, NYDFS expects to move forward on regulations strengthening cyber security standards for banks' third-party vendors, including potential measures related to the representations and warranties banks receive about the cyber security protections in place at those firms.
NYDFS Director Benjamin Lawsky has previously said the thought of a major cyberattack on a financial institution keeps him up at night.
Both Move (MOVE) and Ellie Mae have been targets of a form of cyberattacks – what is called distributed denial of service. Larger companies like Target and Home Depot faced even bigger breaches last year, when the credit data of tens of thousands of customers were compromised.
“A bank's cyber security is often only as good as the cyber security of its vendors. Unfortunately, those third-party firms can provide a backdoor entrance to hackers who are seeking to steal sensitive bank customer data,” Lawsky said. “We will move forward quickly, together with the banks we regulate, to address this urgent matter.”
NYDFS conducted a survey of 40 banking organizations – including many of the largest institutions it regulates – about the cyber security standards those firms have in place for their third-party vendors. Key findings outlined in the report NYDFS issued Thursday include:
- Nearly 1 in 3 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.
- 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).