Closing the Digital Blind Spot: Managing Third-Party Risk

Many organisations underestimate their digital risk exposure because they focus on tier-one suppliers rather than the services they genuinely depend on. This creates a digital domino effect where technical or compliance failures at fourth- or fifth-party providers can trigger cascading financial and reputational crises. Visibility is the primary barrier to resilience.

If you don’t know who’s in your digital supply chain, you can’t manage the risk.

Angie Freeman

Co-Head of Digital,
Clayton Utz

The rapid adoption of third-party AI tools is introducing complex new digital dependencies and security risks, including opaque 'black box' decision-making. AI introduces a new ‘key-person’ risk when human skill sets decline as AI takes over core tasks.

Treating procurement as a linear process where legal teams only arrive at the end to negotiate terms leaves little room to manage risk properly. A more effective approach requires collaborative problem-solving at the earliest stages. This means testing failure scenarios and fourth-party dependencies before the commercial model is fixed. Even in global cloud arrangements with inflexible terms, responsibility for service delivery and customer outcomes remains firmly with the organisation.

For multi-jurisdictional organisations, managing inconsistent regulatory regimes such as APRA's standards and the EU's DORA can become unmanageable. Rather than a piecemeal approach, resilient firms adopt a high-watermark strategy, starting with internal best practice and using that as a baseline to satisfy multiple regulators. The goal is coherence: a framework that absorbs regulatory variation without fragmenting decision-making or diluting accountability.

One of the most persistent barriers to effective digital third-party risk management is securing executive buy-in. Chief legal and risk officers frequently struggle to win support for investment in proactive resilience, often because of a widespread misconception that stronger governance necessarily means higher costs. In reality, under-investment in upfront risk management leads to fragmented, reactive responses that are far more expensive when disruptions occur.

Addressing governance gaps means moving beyond compliance-led processes towards genuine digital resilience. Third-party risk should be embedded in enterprise risk management, not treated as a standalone obligation. Organisations can strengthen governance by focusing on five pillars: setting risk appetite upfront, clarifying ownership and accountability, integrating risk into operational decision-making, shifting from static compliance to dynamic assurance, and tailoring governance to their operating context.

Closing the digital blind spot: managing third-party risk, offers readers an easy-to-use framework.

Organisations don’t often appreciate and effectively manage the myriad of exposures they are subject to when engaging a third party.

Doug Nixon

Head of Risk Advisory,
Clayton Utz