Third Party Risk Management for ISO 27001: Requirements and Best Practice

Organisations rarely operate in isolation. Suppliers, service providers, cloud platforms, and contractors form complex ecosystems that underpin daily operations. However, these relationships introduce risks that can undermine information security controls and jeopardise ISO 27001 certification. Third party risk management iso 27001 is not an optional consideration. It is a fundamental requirement embedded in the standard’s Annex A controls.

Consequently, organisations seeking or maintaining certification must demonstrate systematic processes for assessing, monitoring, and mitigating risks introduced by external parties. Furthermore, Australian organisations face additional obligations under frameworks such as APRA CPS 234 and the Privacy Act, making third party risk management both a compliance imperative and a strategic necessity.

This article examines the ISO 27001 requirements for third party risk management, outlines practical implementation frameworks, and provides guidance for audit preparation.

ISO 27001 Third Party Risk Requirements

ISO/IEC 27001:2022 introduced significant restructuring of Annex A controls. The 2022 version consolidates supplier and third party security into five controls under the broader organisational category. Specifically, these are controls A.5.19 through A.5.23.

A.5.19: Information security in supplier relationships requires organisations to define and agree upon information security requirements with suppliers. This control establishes the foundation for all subsequent supplier security activities. Organisations must identify which suppliers access, process, store, or transmit information assets, and determine appropriate security requirements based on risk.

A.5.20: Addressing information security within supplier agreements mandates that security requirements are documented in contracts or formal agreements. These agreements should specify security obligations, performance metrics, audit rights, and breach notification procedures. Additionally, agreements must address liability, termination, and transition arrangements.

A.5.21: Managing information security in the ICT supply chain extends beyond direct suppliers to encompass the broader supply chain. Organisations must understand and address risks introduced by subcontractors, fourth parties, and nested dependencies. This control is particularly relevant for cloud services, where multiple layers of providers may exist.

A.5.22: Monitoring, review and change management of supplier services requires ongoing oversight rather than point-in-time assessments. Organisations must monitor supplier compliance with security requirements, review performance regularly, and manage changes to supplier services that could impact security posture.

A.5.23: Information security for use of cloud services recognises the specific risks associated with cloud computing. Organisations must apply appropriate security controls based on the cloud service model (IaaS, PaaS, SaaS), understand the shared responsibility model, and ensure cloud providers demonstrate adequate security measures through certifications or audits.

Organisations transitioning from ISO/IEC 27001:2013 should note that these controls consolidate and expand upon legacy controls A.15.1 and A.15.2. The 2022 version provides greater clarity on supply chain complexity and cloud-specific considerations.

Building a Third Party Risk Management Framework

Effective third party risk management iso 27001 implementation requires a structured framework that scales across diverse supplier relationships. A risk-based approach ensures resources are allocated proportionally to the risks presented by each supplier.

Risk-based supplier classification

Risk-based supplier classification forms the foundation of any scalable framework. Organisations should categorise suppliers based on three primary dimensions. First, criticality assesses the business impact if the supplier becomes unavailable or fails to deliver. Second, data sensitivity evaluates the type and volume of information the supplier accesses, particularly personal data, intellectual property, or regulated information. Third, access level considers the extent to which the supplier can interact with systems, networks, or physical facilities.

Using these dimensions, organisations typically establish three or four tiers. Low-risk suppliers might include those providing non-critical services with no access to sensitive data. Medium-risk suppliers may process personal information or have limited system access. High-risk suppliers typically access critical systems, process sensitive data, or provide services essential to business continuity.

Due diligence and security assessments

Due diligence and security assessments vary by risk tier. Pre-contract assessments establish baseline security posture before engaging a supplier. For low-risk suppliers, a brief self-attestation questionnaire may suffice. Medium-risk suppliers warrant detailed security questionnaires covering governance, access controls, encryption, incident response, and business continuity. High-risk suppliers require comprehensive assessment, potentially including review of third party certifications (ISO 27001, SOC 2, IRAP), penetration test results, or on-site audits.

Ongoing assessments ensure suppliers maintain security standards over time. Annual reassessments are common, though high-risk suppliers may require more frequent review. Additionally, trigger-based assessments should occur following security incidents, significant service changes, or adverse media coverage.

Contractual controls

translate security requirements into enforceable obligations. Security schedules or annexes should detail specific requirements, including encryption standards, access control measures, incident notification timeframes, and audit rights. Service level agreements (SLAs) should include security metrics alongside availability and performance measures. Furthermore, contracts must address data handling requirements, particularly for personal information subject to Australian Privacy Principles. Subprocessor restrictions prevent suppliers from introducing additional parties without approval. Breach notification clauses ensure timely disclosure of security incidents. Finally, termination and transition provisions protect information assets when relationships end.

Monitoring and reassessment

mechanisms close the loop. Continuous monitoring tools can provide real-time visibility into supplier security posture through security ratings, dark web monitoring for exposed credentials, and threat intelligence feeds. However, many organisations rely on annual reviews aligned with contract renewals, supplemented by ad hoc assessments when incidents occur or services change materially.

Aligning Third Party Risk Management for ISO 27001 Audits

ISO 27001 auditors assess whether organisations have implemented effective controls to manage supplier-related risks. Therefore, audit preparation requires specific evidence demonstrating systematic third party risk management iso 27001 processes.

Evidence auditors expect includes a complete supplier inventory. This inventory should identify all suppliers, categorise them by risk tier, and document the services they provide. Risk assessments must demonstrate a consistent methodology applied across suppliers, with documented results and treatment decisions. Contracts should include security provisions appropriate to the supplier’s risk tier. Monitoring records prove ongoing oversight, including review meeting minutes, assessment results, and incident response coordination with suppliers.

Common non-conformances often stem from incomplete supplier inventories. Organisations frequently overlook low-value suppliers or fail to capture suppliers engaged directly by business units rather than centralised procurement. Another frequent issue involves lack of documented risk assessments. While informal assessments may occur, auditors require documented evidence of methodology, findings, and decisions. Contracts missing security schedules or clauses represent another common gap, particularly for legacy contracts executed before ISO 27001 implementation. Finally, absence of monitoring evidence suggests controls exist on paper but are not operationalised.

Documentation requirements support audit readiness. A supplier risk register should list all suppliers, their risk classifications, assessment dates, and outstanding issues. Assessment templates and completed questionnaires demonstrate consistent due diligence. A contract database with security clause tracking proves contractual controls are in place. Review meeting minutes document ongoing monitoring activities. Additionally, incident response procedures should address coordination with suppliers, including communication protocols and evidence preservation requirements.

Australian Regulatory Context

Australian organisations face additional third party risk obligations beyond ISO 27001 requirements. Consequently, integration of these frameworks creates efficiency and reduces duplication.

APRA Prudential Standard CPS 234 applies to APRA-regulated entities, including banks, insurers, and superannuation funds. CPS 234 requires identification of information assets, implementation of information security controls, and systematic management of third party arrangements. Specifically, material service providers must be identified, and heightened due diligence applies to offshore providers. Boards must receive regular reporting on material information security incidents and control effectiveness, including third party-related risks. Moreover, APRA expects entities to maintain the ability to continue operations if a material service provider fails or suffers a security breach (APRA, 2019).

Privacy Act and Australian Privacy Principles impose obligations when suppliers process personal information. Australian Privacy Principle 8 requires reasonable steps to ensure overseas recipients handle personal information consistently with Australian Privacy Principles. APP 11 mandates reasonable steps to protect personal information from misuse, interference, loss, and unauthorised access or disclosure. These obligations extend to personal information held by suppliers or processors. Therefore, contracts should specify security requirements aligned with these principles, and due diligence should assess supplier capability to protect personal information (OAIC, 2021).

Industry-specific obligations add further complexity. Financial services organisations must consider ASIC expectations around operational resilience and outsourcing. Health sector entities must comply with My Health Records Act requirements when using service providers. Government agencies follow the Protective Security Policy Framework (PSPF), which includes specific requirements for sharing information with external parties. Consequently, organisations should map ISO 27001 third party controls to these sector-specific requirements to avoid duplication and gaps.

Implementation Best Practice

Translating ISO 27001 requirements into operational reality requires practical approaches that balance rigour with resource constraints.

Centralised vendor inventory

Centralised vendor inventory establishment is the first step. Many organisations maintain fragmented supplier information across procurement systems, IT asset databases, and contract management platforms. A single source of truth improves visibility and enables consistent risk management. Integration with contract management systems ensures security reviews align with contract renewal cycles. Additionally, procurement workflows should trigger risk assessments before new suppliers are onboarded.

Tiered assessment methodology

Tiered assessment methodology ensures resources focus on highest-risk relationships. Low-risk suppliers might complete a brief self-attestation covering basic security practices. Medium-risk suppliers warrant detailed questionnaires covering governance, technical controls, incident response, and business continuity. High-risk suppliers require comprehensive assessment, potentially including review of SOC 2 reports, ISO 27001 certificates, penetration test results, or even on-site audits. Standardised frameworks such as the Consensus Assessments Initiative Questionnaire (CAIQ) or Standardised Information Gathering (SIG) questionnaire can reduce supplier fatigue by providing industry-standard question sets.

Automated versus manual monitoring

Automated versus manual monitoring trade-offs depend on supplier volume and risk profile. GRC platforms enable questionnaire distribution, response tracking, and workflow management at scale. Continuous monitoring tools provide real-time security ratings based on external reconnaissance, certificate monitoring, and threat intelligence. However, these tools supplement rather than replace human judgement. Manual reviews remain important for interpreting assessment results, engaging with suppliers on remediation, and making risk acceptance decisions. Most organisations adopt hybrid approaches, using automation for data gathering and manual processes for analysis and decision-making.

Cloud provider considerations

Cloud provider considerations require specific attention given the prevalence of cloud services. Organisations must understand the shared responsibility model for each cloud service. Infrastructure-as-a-Service (IaaS) requires organisations to secure operating systems, applications, and data, while the provider secures physical infrastructure and hypervisor. Platform-as-a-Service (PaaS) shifts more responsibility to the provider. Software-as-a-Service (SaaS) further limits organisational control, requiring reliance on provider controls. Third party certifications such as ISO 27001, SOC 2, or IRAP provide assurance of cloud provider security practices. However, organisations should verify certificate scope and recency. Additionally, transparency around subprocessors and data residency is critical for Australian organisations subject to data sovereignty requirements.

Common Challenges and How to Overcome Them

Organisations implementing third party risk management iso 27001 frameworks encounter predictable obstacles. However, practical strategies can mitigate these challenges.

Resource constraints are frequently cited barriers, particularly for mid-market organisations without dedicated vendor risk teams. A risk-based approach concentrates limited resources on suppliers presenting greatest risk. Accepting third party certifications (ISO 27001, SOC 2) for low and medium-risk suppliers reduces assessment burden. Leveraging standardised questionnaires (CAIQ, SIG) rather than custom assessments improves efficiency. Furthermore, embedding risk assessment into existing procurement workflows ensures supplier security is considered systematically rather than as a separate compliance exercise.

Supplier questionnaire fatigue creates friction, particularly for suppliers serving multiple customers. Adopting industry-standard frameworks rather than custom questionnaires reduces supplier burden. Accepting certifications and audit reports where appropriate eliminates redundant questionnaires. Sharing assessment results with other customers (where permissible) through platforms or shared assurance programs reduces duplication. Additionally, clear communication about why information is needed and how it will be used improves supplier cooperation.

Maintaining currency across large supplier ecosystems is challenging when assessments are annual point-in-time exercises. Trigger-based reviews supplement scheduled assessments. News alerts and dark web monitoring can identify supplier security incidents warranting immediate reassessment. Breach notification clauses ensure suppliers inform you of incidents affecting your data. Continuous monitoring tools provide ongoing visibility rather than annual snapshots. However, practical implementation requires clear escalation procedures and resource allocation for responding to monitoring alerts.

How CyberPulse Supports Third Party Risk Management for ISO 27001

Organisations preparing for ISO 27001 certification or seeking to enhance existing third party risk management iso 27001 programs can benefit from specialist guidance.

CyberPulse provides ISO 27001 compliance audit services that include assessment of supplier security controls. Our team helps organisations identify gaps, remediate non-conformances, and prepare evidence for certification audits. Additionally, our third party risk management services include supplier risk assessment programs, contract security schedule development, and GRC platform implementation. For organisations seeking ongoing support, our managed compliance services provide continuous monitoring and periodic reassessment aligned with ISO 27001 requirements. Our advisors bring extensive experience across financial services, technology, and other regulated sectors, understanding both ISO 27001 requirements and Australian regulatory obligations. Contact CyberPulse to discuss how we can support your third party risk management and ISO 27001 certification objectives.

Frequently Asked Questions

What are the ISO 27001 third party risk management requirements?

ISO 27001 third party risk management requirements are specified in Annex A controls A.5.19 through A.5.23. These controls require organisations to define security requirements for suppliers, document those requirements in contracts, manage supply chain risks, monitor supplier compliance, and apply specific controls for cloud services. Organisations must demonstrate systematic processes for assessing, monitoring, and mitigating third party risks.

Which Annex A controls cover supplier security?

In ISO/IEC 27001:2022, supplier security is covered by controls A.5.19 (information security in supplier relationships), A.5.20 (addressing information security within supplier agreements), A.5.21 (managing information security in the ICT supply chain), A.5.22 (monitoring, review and change management), and A.5.23 (information security for use of cloud services). These controls consolidate and expand upon legacy controls A.15.1 and A.15.2 from the 2013 version.

How often should third party risk assessments be conducted?

Assessment frequency depends on supplier risk classification. High-risk suppliers typically require annual reassessment as a minimum, with some organisations conducting more frequent reviews. Medium-risk suppliers commonly undergo annual or biennial assessment. Low-risk suppliers may be assessed less frequently, potentially every two to three years. Additionally, trigger-based assessments should occur following security incidents, significant service changes, or contract renewals regardless of scheduled assessment cycles.

What evidence do ISO 27001 auditors require for supplier security?

Auditors expect to see a complete supplier inventory with risk classifications, documented risk assessments showing methodology and results, contracts containing security provisions appropriate to each supplier’s risk tier, and evidence of ongoing monitoring such as review meeting minutes and reassessment records. Additionally, auditors look for incident response procedures addressing supplier coordination and evidence that supplier-related risks are integrated into the broader risk treatment plan.

Do cloud providers need to be ISO 27001 certified?

Cloud providers are not required to hold ISO 27001 certification. However, third party certifications such as ISO 27001, SOC 2, or IRAP provide strong evidence of security controls and reduce assessment burden. Organisations should verify that certificate scope covers the services being used and that certifications are current. For high-risk cloud services, organisations may supplement certifications with additional due diligence, contract security schedules, and ongoing monitoring.

How does APRA CPS 234 relate to third party risk management for ISO 27001?

APRA CPS 234 applies to APRA-regulated entities and requires systematic management of third party arrangements, particularly material service providers. CPS 234 requirements align closely with ISO 27001 Annex A controls for supplier security. However, CPS 234 includes specific expectations around board reporting, heightened due diligence for offshore providers, and operational resilience if providers fail. Organisations subject to both frameworks can implement integrated processes satisfying ISO 27001 and CPS 234 simultaneously, avoiding duplication while meeting both sets of requirements.

Useful Links

• Vendor Risk Management: A Strategic Framework
  ISO 27001 Audit Australia: A Practical Guide to Certification, Auditors and Readiness
• Penetration Testing Requirements in Australia (2026): What Organisations Are Expected to Prove
• ISO 42001 Compliance: Building and Maintaining an AI Management System

Related Services

• Third party risk management Services
• ISO 27001 compliance audit services
• Managed compliance services

External Resources

• ISO/IEC 27001:2022 Information security, cybersecurity and privacy protection
• APRA Prudential Standard CPS 234 Information Security
• NIST Risk Management Framework