September 16, 2019

By Charlie Miller, CTPRP, CIPP, Ponemon Fellow, and Senior Advisor, The Santa Fe Group

In a chilling interrogation video, a suspect describes hacking into Silicon Valley startup Aupticon via a third-party weak point and an inviting Internet of Things (IoT) security hole. “They scanned most of the network,” he says matter-of-factly. “They didn’t scan the thermostat.” The hacker also notes that he scored 75 bitcoins (north of $800,000 at today’s exchange rate) for swiping and selling proprietary blueprints stored on the self-driving car company’s server.

Happily, the episode is fictional. Cisco produced this video dramatization, “Anatomy of an IoT attack,” to draw attention to the magnitude of IoT risks. Far more attentiveness and stronger IoT risk management practices are needed, judging from the Ponemon Institute’s annual study of third party IoT risk. The survey’s findings show that executives with corporate governance and risk oversight responsibilities are largely unaware of the extent to which IoT risks pose to their companies and to their third party partners.

If this comes as a surprise, you’re hardly alone.

What Companies Don’t Know about IoT Risks

Ponemon Institute’s research defines IoT as the physical objects – such as network-connected printers, building automation solutions or thousands of other “things” – embedded with electronics, software, sensors, and network connectivity, which enable these objects to collect, monitor, and exchange data. The 2019 survey findings are based on responses from 625 individuals who participate in corporate governance and/or risk oversight activities and who are familiar with or have responsibilities in managing third party risks associated with the use of IoT devices in their organization. All organizations that participated in this research have a third party risk management program and an enterprise risk management program.

Despite having these capabilities in place, the survey findings show that IoT risk management tends to get short shrift within companies and among organizations’ third party vendors. Some of the most notable trends the study examines include:

  • A lack of clarity and accountability: The survey findings show that a surprising number of respondents do not know if their organization’s current security safeguards and practices adequately mitigate IoT risk, who had been assigned accountability for corporate IoT, and which third party risk management practices and policies are used to mitigate IoT risk.
  • Immature capabilities: Most reviews of third party risk programs and policies, including those pertaining to IoT risks, remain primarily reactive or ad-hoc. Few organizations conduct frequent reviews of their third party risk management programs and policies. While 68 percent of respondents say third party risks are increasing because of growing IoT use, only 45 percent of respondents say their risk management process is aligned with its business goals, and only 34 percent of respondents say there is an approved risk appetite framework incorporating clearly expressed risk tolerance levels.
  • Gaps between in-house and third party IoT risk management practices: While half of respondents (51 percent) say their organizations are monitoring the devices used in their organizations, less than a third monitor their third parties’ use of IoT.
  • Resource limitations: Only 36 percent of respondents report that their organizations allocate enough budget to manage third party IoT risks, and only 33 percent of respondents say their companies have sufficient staffing to manage third party IoT risks.
cyberattack experience unsecured iot device
Respondents report that the likelihood of experiencing a cyberattack (top bar chart) or a data breach (bottom bar chart) caused by unsecured IoT devices or applications in the next 24 months has gone up since last year.

3 Ways to Mitigate IoT Risks

Those and other IoT risk management shortcomings should be addressed quickly. Fortunately, survey respondents appear aware of this need: 84 percent of respondents indicate that it is “very likely” that their company will experience a data breach caused by an IoT device or application. Plus, organizations have notched commendable progress in managing third party IoT risk during the past three years. Only one-third of respondents to our 2017 survey indicated that they evaluated IoT security and privacy practices within third parties before engaging them; this year, 40 percent of respondents say their companies do so.

Still, more progress is needed. Happily, the steps required to improve IoT risk management inside companies and among third parties are relatively straightforward. One of the most important steps involves treating IoT assets and the risks they pose in a similar manner to how organizations manage other IT assets and their attendant risks:

  1. Assign ownership and accountability for the IoT devices and applications used by the company and its third parties.
  2. Take inventory and catalog the IoT landscape in the company and among third parties to identify IoT devices used, the functions each device performs, the data the devices collect, and the security each device requires.
  3. Understand the risks posed by IoT in order to have a third party risk management control validation paradigm that evolves beyond “trust” to “verify.”

By drawing attention to IoT risks in the organization and among third party partners, decision-makers can help keep their companies far away from one more, rapidly expanding category of content – actual news reports of damaging hacks enabled by IoT security gaps.

charlie miller
Charlie Miller

Charlie Miller is responsible for expanding the Shared Assessments Third Party Risk Management membership driven program, facilitating thought leadership, industry vertical strategy groups, research studies, and regulatory and association relationships. He joined The Santa Fe Group, Shared Assessments in 2015 and has been in the third party risk space for over 13 years. A frequent speaker and recognized expert in Third Party Risk, Charlie has led vendor risk management and financial services initiatives for several global companies, including AIG, Bank of Tokyo Mitsubishi (BTMU), Merrill Lynch & Co., Inc., Deloitte, and IBM. Charlie is a distinguished Fellow of the Ponemon Institute, Certified International Privacy Professional and Certified Third Party Risk Professional.