What does "third-party risk" in compliance refer to?

The concept of "third-party risk" in compliance primarily pertains to the potential risks that arise from engaging with external entities such as suppliers, vendors, and business partners. These external parties can expose an organization to various forms of risk, including legal liabilities, regulatory non-compliance, reputational damage, and financial losses. This is especially relevant in compliance contexts where organizations must ensure that their third-party partners adhere to relevant laws, regulations, and ethical standards.

Effective third-party risk management involves due diligence assessments, ongoing monitoring, and establishing clear compliance expectations. By recognizing and addressing these risks, organizations can better protect themselves from compliance violations and mitigate the potential negative impact on their operations and reputation.