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Third Party Risk Management

Navigating Third-Party Risk Management in Saudi Arabia: Adapting to 2025 Regulations

Third-Party Risk Management (TPRM) has become an essential practice for businesses in Saudi Arabia. With the regulatory landscape constantly evolving, companies must remain vigilant in managing third-party risks while adhering to the kingdom’s legal frameworks. Proactive measures are key to ensuring compliance and reducing exposure to financial, operational, and cyber risks.

Key Steps for Compliance and Risk Mitigation in 2025:

1. Regulatory Alignment

Regulatory alignment is at the core of effective Third-Party Risk Management. As regulations continue to evolve in Saudi Arabia, especially in relation to financial services, cybersecurity, and data protection, businesses must ensure that their third party risk management (TPRM) practices are updated and fully compliant.
  • Saudi Arabian Monetary Authority (SAMA): SAMA has been increasingly focused on improving risk management processes in financial institutions. Circular No. 515 outlines governance and risk management expectations, ensuring that institutions not only identify and assess risks but also put in place strategies to manage them. Aligning with these regulations ensures that companies operate within the bounds of the law and reduce their exposure to financial instability from third-party vendors.
  • Capital Market Authority (CMA): The Capital Market Law, particularly Article 63, underscores the importance of risk management for businesses that outsource critical activities. For instance, companies in the financial and investment sectors need to demonstrate that outsourced service providers have risk management measures in place. This law also emphasizes transparency, meaning businesses must disclose their third-party relationships and associated risks to ensure that investors have access to clear and accurate information.
  • National Cybersecurity Authority (NCA): The Cybersecurity Controls Framework (2020) sets a high bar for cybersecurity practices, ensuring that organizations not only implement robust controls internally but also extend them to their third-party relationships. This is particularly relevant in industries handling sensitive or classified information. Ensuring that third-party partners comply with these controls helps avoid cyber breaches that could compromise an organization’s infrastructure and reputation.

2. Due Diligence

Due diligence is the foundation of any sound risk management framework. It involves thoroughly vetting third-party vendors to assess potential risks before forming partnerships.
  • Saudi Data and Artificial Intelligence Authority (SDAIA): The Personal Data Protection Law (PDPL), issued by SDAIA, mandates strict data privacy measures to protect personal and sensitive data. This law applies to any third-party handling data, so conducting due diligence helps ensure that vendors are fully compliant with local data privacy regulations. Businesses must assess whether third-party vendors have robust data protection practices in place, including encryption, access controls, and data retention policies. Non-compliance could result in significant legal penalties and damage to the business’s reputation.
  • Anti-Money Laundering (AML) Law: Article 8 of the AML law requires businesses to ensure that third-party vendors are not involved in money laundering or financial crimes. Due diligence involves evaluating the financial integrity of the third-party and ensuring that they have anti-money laundering (AML) policies in place. This process helps identify any hidden risks associated with vendors and prevents businesses from unknowingly engaging with entities that may jeopardize their operations.

3. Continuous Monitoring

Third-party risk management doesn’t end once a contract is signed. It is an ongoing process that requires continuous monitoring and periodic audits to track the performance, security, and compliance of third-party vendors.
  • SAMA Circular No. 515 stresses the importance of continuous monitoring of third-party risks, especially in the context of financial transactions and services. This includes tracking any changes in the vendor’s financial status, operational capacity, or governance structures. A regular review helps catch any potential risks before they escalate.
  • NCA National Cybersecurity Law: Article 6 of this law highlights the need for organizations to regularly audit their third-party cybersecurity practices. Businesses must ensure that their vendors continue to comply with established cybersecurity controls. This includes reviewing any new cyber threats or vulnerabilities that could compromise the integrity of the supply chain. Periodic cybersecurity audits help to verify that security protocols remain up-to-date and that vendors are taking the necessary steps to protect data and systems.

4. Cybersecurity Standards

In today's increasingly digital environment, cybersecurity is paramount, particularly when dealing with third-party vendors who have access to sensitive data, infrastructure, and systems.
  • NCA’s Cybersecurity Controls Framework (2020) provides detailed guidance on how businesses should manage third-party relationships in the context of cybersecurity. The framework requires businesses to assess the security posture of their vendors and ensure that third parties adhere to stringent security measures. This includes implementing controls around data encryption, secure communications, and incident response protocols.
  • Cybersecurity Law – Article 7: This article mandates that businesses require their third-party vendors to adhere to specific security controls and report any data breaches or cybersecurity incidents. For example, if a vendor experiences a data breach, they must notify the business within a specified time frame, allowing the organization to take necessary action to protect its own data and minimize damage.

5. Contractual Clarity

When entering into agreements with third-party vendors, businesses need to ensure that contracts clearly outline expectations, roles, and compliance requirements. Having well-defined contracts can prevent misunderstandings and provide clarity on the consequences of non-compliance.
  • Contracts should include provisions for adherence to local labor laws, data privacy laws, and cybersecurity regulations. For instance, the Saudi Data Privacy Law under (SDAIA) requires that third parties protect the personal data of individuals in line with local legal requirements. Similarly, businesses should explicitly outline that third parties must adhere to cybersecurity regulations, including specific standards as outlined by the NCA
  • Article 34 of the Capital Market Law highlights the importance of setting penalties or corrective actions in case a third-party vendor fails to comply with regulations. These contractual clauses ensure that vendors are incentivized to maintain regulatory compliance and reduce risks for the contracting business. It also serves as a legal safeguard in case the vendor’s actions result in financial loss, data breaches, or reputational harm.