Fourth Party Risk Management – A Comprehensive Guide

By: Beaconer, Dec 19, 2023

Fourth Party Risk Management – A Comprehensive Guide

In today’s complex and interconnected business environment, companies frequently engage fourth parties to provide services and handle sensitive data. Fourth parties are entities that have been subcontracted or outsourced by your primary vendor or third party.


While bringing immense value, fourth parties also introduce new cybersecurity and compliance risks, commonly called fourth party risks that must be effectively managed. It has been estimated that the average cost of data breach in the financial industry worldwide was 6 million dollars.

What is a Fourth Party?

Fourth parties refer to the vendors used by your organization’s third-party vendors. Typically, organizations have no direct interactions with entities beyond their third-party vendors.

Even though your company doesn’t deal with fourth parties directly, your info sec team is still responsible for addressing fourth-party risks, just like they have to do with third-party risk management (TPRM).

The System and Organization Control (SOC) reports from your vendors should help you determine the fourth parties within your company. It’s crucial that your third-party vendors maintain a robust vendor risk management program to ensure appropriate vetting of fourth party risks.

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What is Fourth Party Risk Management?

Fourth Party Risk Management is the act of identifying, assessing, and mitigating cybersecurity risks posed by the vendors, partners, and suppliers of your third-party partners—basically, your suppliers’ suppliers. Any of your reliable vendors or suppliers may become open to cyberattacks as the digital transformation blurs the boundaries between various IT networks, making them possible entry points for data breaches.

Although the importance of managing security risks related to third-party connections has been widely acknowledged in the cybersecurity industry, very few businesses take the effects of fourth party risks into account.

Significance of Fourth Party Risk Management

The significance of fourth party risk management cannot be understated, as the compromise of a fourth party vendor can potentially lead to a data breach within your organization as well.

To understand how a sequence of events can lead to such incidents, let’s examine a scenario involving your company’s partnership with a cloud storage provider. This provider, in turn, relies on an external data backup service as its third-party contractor. This backup service becomes your fourth party, responsible for safeguarding critical data and possess a fourth party risk.

If the external data backup service doesn’t have robust security measures in place, it creates vulnerabilities that cyber criminals could exploit, potentially leading to a breach of the cloud storage provider’s systems. Given that your company entrusts this provider with your sensitive data, any security breach on their end directly impacts your organization.

If a threat actor successfully breaches the fourth-party backup service and gains access to your company’s sensitive data, the consequences can be severe, including data theft and potential regulatory or legal consequences.

The impact of digital transformation, though unavoidable, is unfavorable in that it blends attack surfaces across all established vendor relationships. Consequently, the vulnerabilities not only within your third-party partnerships but also the risks associated with fourth-party entities play a pivotal role in shaping your organization’s risk tolerance.

Third-Party Risk Management and Fourth Party Risk Management: Differences and Similarities

Fourth party risk management broadens the scope of assessment to encompass the suppliers or partners affiliated with your immediate suppliers, while third-party risk management primarily focuses on security considerations related to your immediate vendors. Given the inability to establish direct physical connections with any of your fourth-party suppliers, the use of autonomous monitoring solutions such as attack surface monitoring tools and supplier risk management tools becomes crucial for mitigating the visibility gaps resulting from these extended partnerships.

Major Fourth Party Risks to be Monitored.

1. Inadequate Access Controls:

Access controls that are poorly managed might leave your organization’s data open to unauthorized users, which raises the risk of data breaches.

2. Inadequate Encryption and Security Measures:

Cyber criminals may find it simpler to access sensitive data if security measures are shoddy or out of date.

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3. Data Breaches and Data Leaks:

Your firm may suffer serious financial, legal, and reputational repercussions because of unauthorized access to sensitive data. Since they hasten the process of a data breach, data leaks are a crucial attack vector to watch.

4. Unpatched Software Vulnerabilities and Out-of-Date Systems:

These issues can expose your company to a variety of cybersecurity risks.

5. Human Mistake and Insider Threats:

The security of the data and systems in your company can be jeopardized by insider threats, whether intentional or accidental.

6. Regulation Non-Compliance:

It can result in fines, penalties, and reputational harm. These laws, for example, include the GDPR, HIPAA, PCI DSS, CCPA, and others.

How to Manage Fourth Party Risks?

As supply chains become more complex with the addition of fourth parties, new risks emerge that must be managed. Since the buying organization has no direct relationship with the fourth party, there is limited visibility and control. 

Identify All Fourth Party Risks

Conduct due diligence into all third parties to uncover any fourth parties they utilize. Understand the services these fourth parties provide. 

Assess Risks Posed

Analyze the level of access fourth parties have to your data and systems. Identify any compliance, security, or privacy risks they introduce.

Implement Oversight Controls

Put contracts and policies in place granting you visibility and oversight into fourth party activities. Require third parties to assess and manage fourth-party risk.

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Monitor Activity

Use tools and audits to monitor fourth-party access, data handling, and security controls. Watch for suspicious activity and policy violations.

The key is extending your supply chain risk management to cover this extended layer of fourth parties through assessment, contract terms, oversight, and monitoring. This closes gaps that fourth parties can otherwise expose.

How Beaconer Can Help?

Beaconer’s advanced AI platform is uniquely positioned to help organizations manage third party risk as well as fourth party risk. As companies increasingly rely on extended networks of third party vendors, who in turn rely on their own vendors, there is a growing need to assess and monitor risk across these complex supplier networks.

Our platform uses natural language processing and machine learning algorithms to continuously scrape the web for updates on fourth parties that may impact our clients. This allows us to proactively identify emerging risks such as bankruptcies, cyber breaches, compliance violations, or other reputational threats across the fourth parties in our clients’ ecosystems. 

With Beaconer’s enterprise-wide visibility into downstream vendors, clients can confidently expand supplier networks knowing we have their back when it comes to fourth-party oversight. Our intelligence minimizes supply chain blindspots and enables organizations to pursue business goals without undue risk.


Welcome to our Frequently Asked Questions (FAQs) section. This resource is designed to provide clear and concise answers to some of the most common questions related to fourth party risk management. Whether you are new to the topic or looking for specific information, these FAQs offer valuable insights and practical guidance.

1) How can organizations identify fourth parties?

Organizations can identify fourth parties by examining their third party relationships with subcontractors, affiliates, or other entities involved in providing services or products. This involves scrutinizing contractual agreements, conducting due diligence on subcontractors, and maintaining transparency throughout the supply chain to uncover any hidden or indirect risks. Also, it becomes essential for organizations to identify fourth party risk.

2) What are the consequences of neglecting fourth party risks?

Neglecting fourth party risks can lead to vulnerabilities in the supply chain, such as data breaches, compliance violations, operational disruptions, or reputational damage. Failure to monitor fourth party risks or affiliates adequately can result in cascading effects, impacting the organization’s bottom line and undermining stakeholder trust. This also makes fourth party risk management essential.

3) How often should fourth party risks be assessed?

Fourth party risks should be assessed regularly and as part of ongoing third party risk management processes. The frequency may vary depending on factors such as the criticality of vendors, the nature of services or products provided, regulatory requirements, and changes in the business environment, but typically, fourth party risk management should occur at least annually.

4) Does fourth party risk management support overall enterprise risk management?

Yes, fourth party risk management is integral to overall enterprise risk management. By identifying and mitigating risks associated with subcontractors and affiliates, organizations enhance their resilience to supply chain disruptions, data breaches, and compliance failures, contributing to a more robust third party risk management framework and safeguarding business continuity.

5) Should small businesses consider fourth party risk management?

Yes, they must definitely consider it. While small businesses may have fewer resources, they are still vulnerable to supply chain risks. Implementing fourth party risk management enables them to identify and mitigate potential vulnerabilities in their extended network, protecting their operations, reputation, and sensitive information.

Author Bio

Nagaraj Kuppuswamy

Nagaraj Kuppuswamy is the Co-founder and CEO of Beaconer, an esteemed enterprise specializing in managed third-party risk using the cloud native AI based solution. With an extensive portfolio of accolades and industry certifications, Nagaraj stands out as a seasoned expert, boasting over 16 years of dedicated involvement in the field of Cybersecurity. Throughout the course of their career, he has predominantly focused on elevating the realm of third-party risk assessment.


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