How are recent supply chain crisis and technology reshaping the future of business risk?
Charles Minutella Head of Enhanced Due Diligence at Refinitiv shares his thoughts with Business Leader about tech and the supply chain crisis is impacting the future of business risk.
The damaging effects of the COVID-19 pandemic rippled through the market, and even as vaccination programs are underway – the aftereffects are very present. Beyond the damage it caused however, the pandemic also has brought to light the importance of vendor risk management and the power of technology in reducing risk. In addition to the health crisis, supply chain scenarios like the Suez Canal crisis, the Kaseya attack, the Colonial Pipeline ransomware attack, and the SolarWinds hack also put vendor management and building strong supply chains to the top of the list of priorities for boardrooms across all industries.
Making mistakes when under pressure
As various supply chain points were affected, many organizations were under severe day-to-day pressure to keep operations running despite single points of failure. During this time many organisations were taking shortcuts with KYC and due diligence checks – recent research found that as many as 65% of organizations did so. The reality is that as they struggled to rebuild fractured supply chains and keep customer trust in a competitive market, leaders made due diligence choices which inevitably exposed them to more risk.
This fostered an environment where criminals and fraudsters thrived and found new ways to target consumers and companies. Despite this threat, many professionals admitted that they were not fully monitoring third parties for ongoing risks.
A focus on due diligence put a focus on ESG factors
Due diligence goes beyond regulatory and financial repercussions. By committing to a robust due diligence program, and building an ethical supply chain, organisation can help put a stop to corruption, modern slavery, environmental crime and wildlife trafficking. The environmental aspect of ESG has historically not been a priority, however more and more companies highlight that tackling green crime is becoming critical – including aspects of illegal fishing, illegal logging, illegal wildlife trade and waste dumping.
Put simply, COVID-19 accentuated ESG issues’ relevance to businesses’ operations and decision-making. This is a trend that will likely continue, as regulations, such as the EU Directive on Mandatory Environmental and Human Rights Due Diligence and Germany’s upcoming Corporate Due Diligence Act are imposing significant enforcement penalties and ask for continuous due diligence of third-party relationships.
The power of technology
2020 and the past few months of 2021 put in into perspective how technology can help fight financial crime and strengthen supply chains. Research found that those organization who were already new utilizing new technologies to fight risks associated with financial crime are both more aware of it and more likely to take action. A new trend is starting to grow roots – there is increased interest in technology new users and old. 91% of organisation who use technology in KYC/compliance are looking to improve financial crime detection and mitigation this year and in 2022. The use of technology also fosters collaboration. Innovative digital technologies not only help identify financial crime but also allow organizations to better collaborate with law enforcement agencies and help halt criminal operations
A few final words
Third party risks have increased immensely over the past year and a half, but are we all aware of the true cost of these crimes on society and the environment? It is now more important than ever to be aware of these hidden risks and how to overcome them through the power of technology and trusted data.