What is third party risk?
Dealing with third parties is a necessary part of business, but it is vital for organisations to know exactly who they are dealing with. Without this knowledge it is easy to fall foul of compliance and regulatory requirements. Not to mention companies may be putting themselves at risk of fraud and all the associated financial and reputational risk that goes with it.
Third parties can pose a variety of risks, including the risk of failure and non-compliance with corporate social responsibilities such as human rights and the environment. Deloitte’s Third-Party Risk Management (TPRM) Global Survey 2020 says, for example, that, of their respondents, “almost half of organizations (46%) surveyed believe the financial impact of a failure by a third party or subcontractor has at least doubled over the last five years, with a tenfold increase for one in five. That financial impact includes fines, direct compensation costs and lost revenue”.
There are six main types of risk to be aware of when companies are dealing with third parties: cyber, compliance, reputational, financial, operational, and strategic. Risks are often compounded in certain situations. So, how should companies assess and manage third party risk?
What is third party risk management?
Third party risk management, or TPRM, is also given various other names including supplier risk management, supply chain risk management, vendor risk management, or vendor management. TPRM covers all kinds of third parties and all the risks that they can create.
It is used by organisations to help identify and reduce the risks that relate to using third parties in business. Companies that fail to fully investigate and protect themselves against third party risk also compromise their compliance with the regulatory environment. While some aspects of third-party risk management can depend on the sector a company is operating in and their associated regulatory requirements, there are many best-practice ways of working that can be applied to all.
Cyber fraud is a major risk factor
As so much is done online these days businesses are open to the risk of cyber fraud. Companies and organisations that do not operate with the right processes in place expose themselves and other parties to fraud risk. There are various ways in which criminals can exploit cyber weaknesses:
- Hacking into systems – passwords and financial information can be stolen.
- Business email compromise – this includes CEO fraud, phishing and other scams that involve taking over company email accounts and impersonating personnel to divert funds.
- Malicious software – fraudsters can hijack files and hold them to ransom.
- Denial of service (DoS) attacks against websites – payments are often required to end the disruption to a service.
Risk management best practice
Education first, robust systems, and the right software will all help in managing risk. As the Deloitte report notes, “the risk landscape changed significantly with COVID-19 impacting organizations globally and across industries… It is now clearer than ever how important it is to prioritize TPRM”.
Companies should educate employees on what constitutes fraud and how fraudsters work. They should be cognisant of the main scams and know how to deal with any concerns they may have quickly. The right systems and software in place will help with this enormously. The PwC Global Economic Crime and Fraud Survey 2020 found that “companies that have a dedicated fraud programme in place generally spent less (relative to revenue) on response, remediation and fines”.
Trustpair is by your side regarding third-party wire transfer fraud risk management
Trustpair is the leading French company in the field of third-party bank details management: our SaaS solution will analyse, monitor, and verify the third party data. Our software can be adapted for the technical environment you work with, whether it is via web application, via native integration such as SAP or Kyriba, or custom APIs for any financial tools.
Trustpair’s systems offer automated processes that reduce third-party wire transfer fraud risk and add three extra steps to make the procure-to-pay (P2P) process more secure. Bank details of third parties can be systematically checked and continually verified to ensure that they are associated with the company’s identity. Our solutions give peace of mind and free up valuable employee time, allowing them to focus on more productive tasks. They also reduce the risk of human error and exposure to corruption or bribery.
Third parties should be happy to submit to electronic identity verification when possible. It should allow for a faster on-boarding process which is beneficial to all parties. It automates the verification process and offers know your business (KYB) [insert relevant blog post link] compliance with electronic authentication.
Trustpair solutions make your company more attractive to your third parties also.
To find out more about how our software can help with your third-party risk management, please contact us now to organise a demo.
Key Takeaways:
- Third-party risk management (TPRM) helps companies understand and mitigate the risk of working with third parties
- It is vital to have the right TPRM systems and software in place
- Trustpair TPRM software offers solutions for extra security and peace of mind
