5 Third-Party Risks that VASPs Cannot Ignore

Third-party providers are often cheaper, do not need an in-house IT team, and are frequently plug-and-play options offering immediate results. However, are these immediate perks worth the potential long-term damage to a company’s reputation? 

Below, see 5 third-party risks relevant to VASPs along with the solution. 

Increased Data Breach Risks 

Any Travel Rule-respecting VASP will understand the need for a Travel Rule solution that offers robust data security and protection. It is the law. The GDPR, DORA, and FIC Act are just some examples of frameworks and regulations that highlight how customer data must be handled and protected. 

Third parties are prone to data breaches because they serve many companies simultaneously, hence their low cost. Additionally, all these companies store their data in one central pot, which can be accessed by many unknown users. As third-party providers become increasingly popular due to their low costs, copious amounts of data are stored and exposed on the internet, thereby increasing the attack surface for hackers. 

Cross-Border Data Transfer Risks

Cross-border data transfers often have significant regulatory challenges, particularly under the GDPR and MASAK frameworks. When VASPs use cloud services hosted in foreign countries, they risk breaching data and privacy laws. 

By keeping data on local servers, VASPs can avoid these violations. Additionally, on-premise configurations can be tailored to meet the specific compliance needs of local jurisdictions. For example, in regions where laws mandate that data remain within national borders, on-premise solutions provide a compliant alternative that eliminates dependence on external hosting providers.

Inconsistent Compliance Standards 

When using a third-party provider, VASPs can be exposed to varied compliance standards. Providers often operate across multiple jurisdictions, and their offerings may adhere to one region’s regulations (often their main focus group’s region) and not another’s, which can lead to non-compliance.

There are also issues with data retention and auditing. When a provider’s compliance standards vary, conducting audits and ensuring data is retained according to your jurisdiction’s stipulated time frame becomes difficult. For example, most countries require data to be retained for 5 years after terminating a business relationship, but the UAE requires 8 years. How can this be ensured? 

Returning to point one - it is difficult to enforce data protection policies when data is not stored on-premises, leaving the organisation vulnerable to internal and external risks. 

Lack of Transparency 

When data is stored on your company’s servers, there is complete transparency. You know what firewalls and safeguards are in place, as well as which encryption practices are being adhered to. When using a third party, you cannot be sure what access controls they have in place or backups. In fact, you have no control over how your data is stored and handled. 

Once your data is handed over to a third party, you lose direct control. If the provider makes changes to their policies or systems, you may not be informed immediately — or at all. Without complete transparency, it’s hard to know if your data is being adequately protected. 

Operational Disruptions 

Operational disruptions are a big issue for VASPs. If your third-party provider’s systems are offline or down, yours are down. Similarly, if your third-party provider schedules maintenance, your systems are down. Depending on the size of your VASP and the third party’s downtime, your reputation could be severely damaged, or worse, your business could be crippled due to the loss of revenue during this period. Moreover, it may be hard to re-attract customers once they find out you are storing their sensitive data on a cloud server. 

What Can VASPs Do to Avoid These Issues? 

Always opt for an on-premises Travel Rule solution. On-premise solutions offer enhanced security and compliance by keeping all data on your company’s own servers, significantly minimising the risk of data breaches. With data never leaving your infrastructure, you are ensured full compliance with your jurisdiction’s regulations. This setup also eliminates non-transparency, as you control every process. Additionally, you manage your system’s downtime, allowing you to schedule maintenance at optimal times without disrupting customer operations.

Learn more about 21 Travel Rule - the on-premises solution favoured by VASPs serious about data security and protection.