Third-party risk management–safeguarding data in a digital economy

third party risk management
  • September 03, 2025

In today’s hyper-connected business landscape, data has become the bedrock of the digital economy. Whether it is small businesses or multinational corporations–every organisation relies on data to optimise their operations, enhance customer experience and drive innovation within their organisations. However, as businesses become increasingly dependent on data, challenges related to data privacy and third-party risks also increase. Since businesses engage with third-party vendors for cloud services, payment processing and cybersecurity for their day-to-day functioning, the question arises–how can organisations build trust while sharing data across vast ecosystems? 

Organisations have to be transparent with their customers regarding the vast amount of data they collect and how the data is used, stored and shared. Regulations like the Digital Personal Data Protection Act, 2023, in India and the General Data Protection Regulation (GDPR) in the European Union highlight the growing awareness of data rights among consumers and governments alike. Therefore, establishing a culture of privacy and incorporating it into every process, product and service helps build and retain the trust organisations have built with their customers over the years.

Safeguarding data

Since India's DPDP Act includes data fiduciaries and their third-party vendors, third-party risk management becomes a critical aspect of complying with the Act. While third parties are a vital part of the business ecosystem, their security protocols might not be as stringent as the primary organisation. Therefore, outsourcing services to third parties can pose significant risks, especially when it comes to handling sensitive information. Data breaches and compliance failures originating from third parties often lead to significant legal, financial and reputational damage to the primary enterprise. A robust third-party risk management programme could help minimise these risks by providing complete visibility of vendor risks. With the implementation of the DPDP Act, organisations need to step up their TPRM efforts to ensure compliance with the Act.

The Act has reshaped third-party risk management by compelling organisations to re-evaluate what can be shared with data processors and third-party service providers, especially when dealing with sensitive personal information. Instead of minimising outsourcing, companies need to establish more operational oversight by demanding third parties to operate within the prescriptive borders that are determined by the client. Clients are also increasingly asking third parties to not only adhere to compliance requirements but also actively track, report and demonstrate compliance with the DPDP Act’s standards.

Strengthening data security

Organisations must recognise that data security is not just a technical requirement but a strategic imperative. The goal is to not only meet compliance requirements but also to proactively anticipate and mitigate risks related to data, particularly those arising from external partners. Some of the best practices which organisations can adopt to strengthen their data security are:

Before engaging with their third-party vendors organisations must perform thorough assessments while focusing on the vendor's data protection policies, security measures and breaches. Assessing the vendor's response strategies in case of a breach and verifying the vendor's ability to mitigate risks is also an effective strategy. For instance, working with vendors who possess certifications such as ISO 27001 demonstrates the vendor's commitment towards security.

Organisations must outline the data privacy requirements in contracts, including clear guidelines and responsibilities in the case of a data breach or a regulatory failure. Enforcing strict regulatory compliance and defining the liability measures in case of non-adherence is necessary. This ensures accountability from the vendor and making them more proactive with their security stance. The contracts should include specific clauses with details about how the data will be processed, stored and transferred. 

 Periodic audits, assessments and regular monitoring of vendor security practices are crucial to mitigate evolving risks and to ensure that vendors maintain robust data protection standards over time. Organisations must implement automated monitoring solutions to track vendors' compliance with security frameworks and identify potential threats proactively.

Organisations should establish a robust incident response plan to handle the breaches caused by third-party sources. A well-defined incident response plan is vital in containing the damage caused by the third-party-related data breach. Enterprises must also establish a clear communication channel between their internal teams and the vendors to ensure prompt action during such incidents.

Conclusion

Establishing a robust third-party risk management is essential for businesses as strengthening partnerships with vendors through transparency and accountability could ensure data integrity and security in the long run. Enterprises must take proactive steps to manage data privacy and third-party risk management. Safeguarding data isn't just a compliance issue–it’s essential to foster trust in the digital economy. Balancing innovation with strong privacy practices and stringent third-party oversight will be essential for long-term success in a data-driven world. 

Sustainable digital growth thrives on finding the right balance between innovation and responsibility. By adopting a privacy first approach towards third-party risks, organisations can harness the value of data while safeguarding the rights and expectations of their stakeholders. By incorporating data privacy and third-party risk management into the very fabric of their operations, entities can not only demonstrate their compliance with the regulations but also position themselves as both resilient and responsible custodians of data. This unwavering commitment to transparency, accountability and security could build long-term customer relationships and help enhance the trust of the stakeholders in the organisation.

Follow PwC India

Required fields are marked with an asterisk(*)

Your personal information will be handled in accordance with our Privacy Statement. You can update your communication preferences at any time by clicking the unsubscribe link in a PwC email or by submitting a request as outlined in our Privacy Statement.

Hide