Third-party risk management: addressing comprehensive risk efficiently

• The ever-changing risk landscape continues to present a range of increasingly complex and multi-faceted challenges.
• Discover the most effective strategies for firms to navigate the complexities of identifying potential risks associated with third parties.   

The third-party risk landscape has become increasingly complex and multi-faceted over the last several years.

Evolving risks, growing regulatory requirements, shrinking budgets and rising levels of reputational concerns have coalesced to create a dynamic environment in which firms are tasked with assessing third-party risk across often vast global supplier and distribution networks – and the need to do so at speed.

Time is of the essence – identifying potential risk early in the game is key, since this can help to identify those relationships that require further investigation, such as enhanced due diligence, before establishing a new third-party relationship.  

This risk assessment prior to onboarding is crucial, but it is also important to stress that third-party risk is not a static challenge. Assessing potential risk in supply networks needs to be an ongoing process, given such risk is highly dynamic in nature, and the types of risks impacting organisations are constantly evolving.

Identifying and mitigating traditional third-party risks, such as bribery, corruption and sanctions risks, is no longer sufficient, as more and more risks – ranging from cyber and ESG, to financial, geopolitical, and more – continue to emerge.

This ever-changing landscape presents a range of challenges, since each type of risk needs to be managed and assessed using different data.

Against this backdrop, firms are also tasked with more complex compliance obligations. An increasing number of global regulations now emphasize the need for companies to proactively manage risks across their supply chains, not just with their immediate third parties.

A further challenge is rising cost pressures. Organisations are increasingly tasked with “doing more with less” as internal resources are stretched in a tight economic environment.

Whilst adopting a robust approach may lead to increased costs and effort, it remains crucial for firms to assess potential risk in an efficient and frictionless manner, without slowing the pace of business.

A critical part of third-party risk management is the implementation of a viable screening solution that harnesses the power of broad risk coverage and leading technology to manage the risk environment.

Technology can add speed and efficiency to processes to minimise business disruption, whilst comprehensive, trusted risk data is key to informed decision making about third-party relationships.

To effectively assess different types of risk, different data sets are required. Such data sets could include, for example:

• Business overview and corporate entity data to help you ensure that you are dealing with the correct entity – this should span both active and inactive companies around the globe. 
• Compliance risk data that can be used for fast and effective screening and monitoring of both individuals and entities across supply networks.
• Adverse media records, both print and web-based, that may be linked to a supply partner.
• Company ownership information that goes beyond headline ownership to reveal intermediate and beneficial owners, helping you to develop a holistic understanding of complex, trans-jurisdictional ownership relationships.
• Country risk information, which can shed light on the potential jurisdictional risk linked to a supplier.

In addition to securing the right technology and data, adopting a holistic third-party risk management onboarding solution is a fundamental consideration, since the sheer time, effort and cost involved in setting up and securing different solutions to adequately address each type of potential risk can be substantial.

More than this, assessing risk in isolation can be ineffective – it is possible that some risks could slip through the net altogether. 

It is therefore worth investing in a single solution that will help you to identify different risks across the spectrum – one capable of integrating multiple, disparate third-party data sets to deliver a clear, holistic view of third-party risk.

Those firms that do this – and take a proactive approach to creating forward-thinking third-party risk management strategies – can turn risk mitigation into a competitive advantage by implementing processes to efficiently identify disqualifying factors linked to third parties, before they result in costly business disruptions, regulatory actions or reputational damage.