Know Your Supplier: How COVID-19 has exposed supply chain vulnerability, and what banks and financial service organisations can do to boost resilience and mitigate risks

Know Your Supplier (KYS)

Today’s banks and financial service organisations are built on highly-interconnected ecosystems.

Complex supply chains carry the potential for huge competitive advantage, but also open up exposure to significant risks (reputational, financial or regulatory).

The COVID-19 pandemic has exposed just how fragile supply chain ecosystems are – failings in due diligence, whether at supplier onboarding stage or with ongoing third party risk monitoring, have become starkly apparent.

According to the Refinitiv 2020 Third Party Risk Survey (which surveyed 1,800 respondents across third party relationship, risk management, and compliance professionals):

  • 43% of third party relationships are not subject to any form of due diligence
  • 60% of organisation are not fully monitoring third party suppliers for ongoing risks

This is a time of great challenge to the UK economy, and one of the hallmarks of that challenge is uncertainty. Uncertainty can quickly lead to fear, and fear is the enemy of good decision making.

For banks and financial service providers, which are highly reliant upon third party suppliers, the need to monitor and manage risks associated with third parties and reveal the hidden dangers in supplier, distributor and partner relationships has never been greater than it is today.

According to Refinitiv’s respondents, an inability to monitor and uncover hidden risks in supply chains threatens an organisation’s reputation (45%), financial security (43%) and regulatory compliance (41%).

refinitiv hidden threats third party risk

Know Your Supplier

Supply chain relationships are built on trust and credibility.

Know Your Supplier (KYS) means more than simply checking that they’re not a ‘dodgy’ organisation – suppliers provide crucial products and services, therefore it’s important to have complete oversight to understand potential issues and risks that could directly impact your business operations.

KYS is a necessary process to make sure that your business is working with the right suppliers, and building long-lasting, trustworthy, and mutually-beneficial relationships which create a means for innovation and growth. When supply chains grow in size and complexity, the amount of visibility, or oversight, often shrinks.

Enter an unexpected macroeconomic event or global pandemic, such as we are currently experiencing with COVID-19, and visibility is decreased even further.

It’s hard to keep track of what is happening with your suppliers and the impact of COVID-19 on their organisation, especially when your own resources are reduced or stretched.

The Refinitiv report highlights that lack of resource is currently having a huge impact on the ability to identify supply chain risks, with 32% of respondents stating this to be a major issue.

The ability able to foresee potential service interruptions gives banks and financial service providers a vital opportunity to mitigate third party risks and reduce uncertainty.

So what’s the answer during this time of increased uncertainty and reduced/stretched resources? The answer is data and insight!

Data-Driven KYS

The Refinitiv report highlights that 37% of organisations believe lack of access to data is a challenge they face in identifying supply chain risks.

Banks and financial service providers must overcome this data challenge – it’s vital to unlocking potential by speeding up compliance processes and identification of third party risks.

Banks need to build supplier management models that include rigorous data analysis, and tools that can structure and streamline data and insight to find supplier risk signals in the white noise.

Overcoming the KYS data challenge means building greater visibility, boosting resilience, and mitigating risks. RegTech innovation, via providers such as Artesian, can help banks and financial service providers rise to the challenge on all fronts.

Artesian has been in the business of delivering smart insights about companies to banks for 10 years. At this unique time in Britain’s economy, we have responded by adding the ability for a bank’s Supplier Management function to monitor for financial risk.

Artesian has already accessed mainstream credit risk and company financial data via API, and has the ability to monitor the news for adverse commercial events.

We’ve gone further and built a series of standard rules to flag potential problems or risks, at an appropriate level for the bank’s supplier management team, as they happen.

All the bank now has to do is define users to be enabled on this cloud-based service and decide which companies to track, with no need for complex IT support or integration.

The Artesian Platform is flexible, both in terms of data sources and rules applied to that data to create flags.

Artesian has integrator agreements with key data suppliers (including DnB, Lexis Nexis and more) and therefore banks and financial service providers can Screen and Track suppliers from a financial and non-financial perspective a single platform that fully reflects their own policies.

Monitor the now, see the future, reduce third party supplier uncertainty.

For more information on Artesian’s Know Your Supplier capabilities, and the wider Artesian Risk and Compliance Hub please click here.