With the traditional business landscape being pulled apart due to the ever-hastening digitalisation of our world, traditional brick-and-mortar business has become outdated. We now operate in a world thriving on third party relationships, but that extra complexity comes with extra risk.
The European Union and the United Kingdom stand at the forefront of global trade and business partnerships. However, with increasing interconnectivity comes the challenge of managing third-party risks. For companies headquartered, operating within these jurisdictions, or in the supply/value-chain of companies that do, understanding and mitigating these risks is not only crucial for resilience but also for compliance.
Third-Party Risk Management (TPRM) involves identifying, assessing, and controlling risks presented by outside entities with which a business engages. These entities could range from suppliers, vendors, and contractors, to any other non-internal party involved in the value chain.
In the context of the EU and UK, there is a litany of legislative framework that emphasises third-party risk management, such as the German Supply Chain Due Diligence Act, the UK Bribery Act, and UK Corporate governance Code, as well as France’s Sapin II.
All of the aforementioned legislature in one way or another references, or has a direct impact upon TPRM, but the main issue for companies across the UK and EU is that its implementation is fraught with challenges.
A main sticking point is differing regulatory framework across borders. Different countries have different regulations, making a standardised TPRM approach difficult, this coupled with the overall challenge regarding differences in what’s culturally acceptable means that navigating this minefield is essential for an effective TPRM system.
This is doubly problematic for multi-national corporations, whose supply chains can span continents, with each link adding another potential risk factor.
However, Diligent believe that building a successful TPRM system is essential for building stronger, more resilient relationships with your business partners.
Organisations operating in the EU and UK can take steps to dramatically mitigate the risks brought to the table due to TPRM.
A detailed vetting programme for third parties would no doubt go a long way to addressing concerns, as understanding their business operations, financial health, reputation, and any potential red flags, would alleviate the chances for trouble.
Similarly, continuously monitoring the situation would allow firms to stay ahead of the game. It is important to remember, with that in mind, that risk management is not a one-off task, rather an evolving process. Keeping with that thinking, regular training sessions for your employees regarding the latest best practices and regulatory requirements can keep your organisation aware of the risks of TPRM from top to bottom.
One key silver bullet for companies could be the advancement of TPRM solutions that can automate due diligence, monitor risks in real-time, and provide actionable insights. These solutions arguably offer the best possible chance for organisation’s to mitigate the risks of TPRM.
Ultimately, the EU and UK, with their progressive stances on business transparency, human rights, and environmental protection, provide both opportunities and challenges for businesses.
While the regulatory landscape may seem daunting, with a robust third-party risk management strategy, businesses can not only comply with regional mandates but also foster trust and build stronger, more resilient relationships with their partners.
A haphazard department and document-centric approach for TPRM compounds the problem and does not solve it. Organisations need to address third-party risk with an integrated strategy, process, and technology to manage third-party relationships with real-time information and risk intelligence.
Read the full post by Diligent here.
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