Overview of ICT Third-Party Providers Operating in Third Countries

by Sneha Naskar

‘ICT third-party service provider established in a third country’ means an ICT third-party service provider that is a legal person established in a third country and that has entered into a contractual arrangement with a financial entity for the provision of ICT services. These providers are based outside the jurisdiction where the financial entity operates but play a crucial role in delivering essential ICT services.

Key Characteristics of These Providers

What Is an ICT Third-Party Service Provider Established in a Third Country?

An ICT third-party service provider established in a third country refers to a company or entity that provides ICT services and is legally incorporated outside the primary country of operation of the financial entity it serves. Despite being located abroad, these providers are integral to the financial entity's operations through contractual agreements.

Key Characteristics of These Providers

  • International Presence: They operate from a country other than the one where the financial entity is based, often serving multiple clients across different regions.
  • Contractual Arrangement: They have formal agreements with financial entities to supply critical ICT services, which can include cloud computing, data storage, cybersecurity, and more.
  • Regulatory Implications: The use of such providers introduces specific regulatory and compliance considerations, particularly regarding data protection and service reliability across international borders.

Examples of ICT Third-Party Providers Established in Third Countries

  • Global Cloud Providers: Companies like Amazon Web Services (AWS) or Microsoft Azure operate data centers in various countries to provide cloud services to financial institutions around the world.
  • International Cybersecurity Firms: Firms specializing in global cybersecurity solutions, such as Palo Alto Networks or CrowdStrike, which provide protection services to financial entities internationally.
  • Offshore Data Centers: Providers of data storage and management services based in countries different from the client’s location, such as data centers in Singapore or Ireland serving companies in Europe and Asia.
  • Global IT Consulting Firms: Companies like IBM or Accenture offer a range of ICT services, including IT infrastructure management and consulting, to financial entities across different regions.

Importance of Managing Third-Country ICT Service Providers

Managing ICT third-party service providers established in third countries is essential due to several factors:

  • Operational Continuity: Ensures that essential ICT services are provided reliably, even though the provider is located outside the primary jurisdiction of the financial entity
  • Regulatory Compliance: Addresses challenges related to compliance with local and international regulations, including data protection laws and industry standards.
  • Risk Management: Helps manage risks associated with relying on international providers, such as potential disruptions in service or geopolitical issues.
  • Data Security: Ensures that data handled by these providers is protected according to relevant standards and regulations, despite the cross-border nature of the services.

DORA Compliance Framework

Strategies For Managing Third-Country ICT Service Providers

  • Thorough Due Diligence: Conduct comprehensive assessments of third-country providers to evaluate their capabilities, security measures, and compliance with relevant regulations.
  • Clear Contractual Terms: Establish detailed contracts outlining the scope of services, performance expectations, and compliance requirements. Include clauses that address data protection, service continuity, and dispute resolution.
  • Regulatory Compliance: Ensure that the provider's operations comply with both local and international regulations, including data protection laws like the GDPR or CCPA.
  • Service Level Agreements (SLAs): Define clear SLAs that set performance standards, monitoring requirements, and penalties for non-compliance. Ensure that SLAs align with the financial entity's operational and regulatory needs.
  • Continuous Monitoring: Implement mechanisms to regularly monitor the performance and security of services provided by third-country providers. Address any issues or deviations from agreed standards promptly.
  • Risk Assessment: Evaluate risks associated with international providers, such as geopolitical instability or regulatory changes, and develop strategies to mitigate these risks.
  • Incident Response Planning: Develop and maintain an incident response plan that includes procedures for addressing service disruptions or failures involving third-country providers.

Real-World Examples of Managing Third-Country ICT Providers

  • Multinational Bank: A global bank uses a cloud service provider based in the United States. The bank conducts regular audits to ensure compliance with GDPR and maintains robust SLAs to ensure service reliability.
  • Insurance Company: An insurance firm relies on a cybersecurity firm located in Israel for threat detection and response services. The company ensures that the provider meets international security standards and maintains a clear incident response plan
  • Financial Exchange: A stock exchange engages a data center provider in Ireland to handle its data storage needs. The exchange monitors service performance and compliance with EU data protection regulations.

DORA Compliance Framework

Best Practices For Managing Third-Country ICT Service Providers

  • Regulatory Alignment: Ensure the provider's practices align with the home country's regulations and the financial entity's jurisdictional requirements.
  • Detailed Contracts: Draft comprehensive contracts covering all aspects of service arrangement, including compliance with international data protection laws and service continuity provisions.
  • Regular Reviews: Regularly reviews the provider’s performance, security measures, and compliance status to ensure ongoing adherence to agreed terms and regulations.
  • Stakeholder Engagement: Involve key stakeholders, including legal and compliance teams, in managing and overseeing third-country ICT service providers.
  • Flexibility and Adaptation: Stay informed about changes in international regulations and geopolitical developments that may impact third-country service providers and adapt strategies accordingly.

Conclusion

ICT third-party service providers established in third countries play a critical role in supporting the operations of financial entities globally. Financial institutions can ensure operational stability, regulatory compliance, and data security by understanding their significance and implementing effective management practices. As the global reliance on international ICT services grows, proactive management and strategic oversight will be essential for maintaining a resilient and compliant financial environment.

DORA Compliance Framework