In recent years, the landscape of third-party risk management has grown increasingly intricate, potentially exposing organizations to a broader array of emerging risks. However, the adoption of a third-party onboarding tool offers an effective means to confront these new challenges.
Explore the impact of third-party risk on investment decision-making processes. Comprehend the mounting pressures on third-party risk management programs. Learn strategies to enhance your third-party risk management program and make well-informed investment decisions.
In addition to emerging risks, the proliferation of new regulations across the globe can complicate a company’s endeavor to maintain regulatory compliance. These and other challenges place additional responsibilities on the individuals and teams entrusted with mitigating third-party risks.
To address these challenges, companies should incorporate a third-party onboarding solution as an integral component of their comprehensive third-party risk management program. Such a tool is often a cloud-based workflow solution designed to help companies efficiently and effectively assess third-party risks. An onboarding solution can assist organizations in implementing a consistent, defensible, and efficient third-party risk management program across their global operations.
The Changing Landscape of Third-Party Risk
The past few years have witnessed significant shifts in the realm of third-party risk. One noteworthy change is that third-party risk no longer encompasses just traditional concerns like corruption and bribery. Instead, it increasingly encompasses emerging risks such as cybersecurity, data privacy, ESG (Environmental, Social, and Governance), and geopolitical risks.
Another pivotal change is the heightened global regulatory scrutiny on third parties. For instance, the recent conflict in Ukraine led to a substantial increase in the number of entities and individuals placed on sanctions lists. Recent legislations, such as the US Uyghur Forced Labor Protection Act (UFLPA) and Germany’s Supply Chain Due Diligence Act, have also focused on ESG risks within global supply chains. Several of these regulations mandate periodic reporting on a company’s third-party risk management programs.
A third change pertains to the evolving definition of a third party. Traditionally, a third party referred to immediate partners, like outsourced suppliers or distributors. However, it has expanded more recently to include entities further down the supply chain (also known as 4th or nth tier suppliers). This shift is driven by new regulatory requirements and the experiences derived from years of supply chain disruptions. Consequently, companies are increasingly striving to comprehend and mitigate risks across their end-to-end supply chain.
A fourth change relates to the evolving role of third-party risk management. Historically, these programs mainly concentrated on minimizing a company’s exposure to regulatory risks. However, years of supply chain disruptions have broadened the program’s focus to include the prevention of such issues in the future. Moreover, third-party risk management teams have been tasked with supporting corporate austerity measures in response to the ongoing global economic slowdown.
Mounting Pressures on Third-Party Risk Management Programs
These changes introduce several fresh challenges for those responsible for managing third-party risk programs. Conventional approaches prove insufficient to address these novel hurdles. As a result, third-party risk management teams must now:
Understand risks across the entirety of a company’s third-party portfolio. Centralize oversight of a previously fragmented third-party risk management program. Enhance the reporting capabilities of the company’s third-party risk management program. Reduce the administrative overhead required to operate a third-party risk management program. Identify and promptly understand any new risk events related to onboarded third parties. Furnish a transparent audit trail for any third party that has undergone onboarding.
Benefits of Third-Party Onboarding Tools
A third-party onboarding tool can increasingly serve as a pivotal element of a comprehensive third-party risk management program and can help organizations grapple with a spectrum of challenges, from ensuring program consistency to providing a transparent record of decision-making. Consequently, it can furnish companies with the following advantages:
Establish a uniform third-party onboarding program company-wide. Enforce a risk-based approach across the entire life cycle of third parties. Attain a comprehensive view of third-party risks across the organization. Diminish the administrative burden through automation. Minimize the risk of human errors due to automation. Maintain a clear record of actions taken and decisions made regarding third parties. Access comprehensive data and reports pertaining to the third-party risk management program.