CRISC Certified in Risk and Information Systems ControlRisk Response and ReportingHard
An organization relies heavily on a third-party vendor for its critical cloud infrastructure. The risk assessment identifies that a data breach at the vendor's side could lead to significant regulatory fines and reputational damage for the organization. To address this, the organization updates its contract with the vendor to include clauses that mandate specific security controls, regular independent audits, and a financial liability clause requiring the vendor to pay penalties if a breach occurs due to their negligence. The financial liability clause primarily represents which risk response strategy?
- ARisk Mitigation
- BRisk Transfer
- CRisk Acceptance
- DRisk Avoidance
Show answer & explanationAnswer & explanation
Correct answer: B. Risk Transfer
The financial liability clause requiring the vendor to pay penalties in the event of a breach directly shifts some of the financial consequences of the risk to the third-party vendor. This is a classic example of risk transfer, where the financial burden is passed to another party.
Why the other options are wrong
- A. Mandating specific security controls and independent audits are examples of risk mitigation, as they reduce the likelihood of a breach, but the financial clause itself is not.
- C. Risk acceptance would mean taking no action regarding the financial consequences of a breach.
- D. Risk avoidance would mean not using the cloud vendor at all.
Risk Transfer (Financial)
Risk transfer, in a financial context, involves shifting the financial consequences of a potential risk event to another party, often through contracts, insurance policies, or indemnification clauses.
- Shifts financial burden, not necessarily the risk itself.
- Commonly achieved via insurance or contractual agreements.
- Does not eliminate the risk, but reallocates its financial impact.
Memory trick: Transfer the pain, but not the blame.