Friday, 26 April 2024
Refinitiv survey exposes severe lack of due diligence on business supply chains in Asia Pacific
New research reveals that despite more than half (58%) of Asia Pacific companies facing enforcement actions against them in relation to a third-party risk, 44% of third-party relationships are still not subject to due diligence checks.
The findings are shared as companies struggle to monitor third-party risks and protect themselves and their supply chains in the post COVID-19 environment – with only 18% of APAC respondents saying they understand the risks related to pandemics and epidemics.
Asia Pacific: Refinitiv, a provider of financial markets data and infrastructure, has published the findings of its fourth third-party risk survey. The report highlights the pressures that organisations face when managing risk associated with third-party relationships, intensified by managing an average of almost 10,000 of these relationships across the world, and reveals the hidden dangers in supplier, distributor, and partner relationships. In particular, the report showcases the significant threats COVID-19 poses to third-party risk management and supply chain stability, potentially exposing companies to fraud and threatening their business operations.
Despite greater regulation and stronger enforcement action, the report finds that organisations are struggling to gain visibility over third-party risks and take appropriate action. The survey of risk management and compliance professionals found that on average, 44% of third-parties in the Asia Pacific (APAC) region and 43% of third-parties globally do not receive due diligence checks. This represents an increase of 6% internationally compared to the responses found in Refinitiv’s 2016 Third-Party Risk Survey.
When it comes to reporting a third-party breach, while 64% of APAC respondents would report internally, only 14% said they would report it externally. Additionally, 61% believe that prosecution would be unlikely if the organisation breached third-party-related regulations.
COVID-19 is set to have a substantial impact on the risk landscape, particularly in terms of supply chain and third-party risk. Global supply chains can create competitive advantages for businesses and cut costs for consumers, but they also carry significant risk. If businesses do not have clear insight into all levels of their supply chains and the ability to conduct due diligence quickly and easily, they cannot hope to mitigate or manage their risk. However, 65% of APAC respondents and 62% of global respondents say they do not know the extent to which third-parties are outsourcing work. Furthermore, only 18% of APAC respondents and 15% of global respondents report that they have sufficient knowledge of the risks associated with pandemic and epidemics.
“COVID-19 has exposed the fragility of supply chains and demonstrated how critical due diligence is to identify and manage multiple risk scenarios, whether it be country risk, jurisdiction risk, or the concentration risk of over-exposure to vendors or geographies. As a result, businesses are likely to build greater visibility and resilience into their supply chains in the future so they can more thoroughly assess and mitigate supply chain risks and increase actions taken in all aspects of third-party due diligence,” said Phil Cotter, Managing Director of the Risk business at Refinitiv
The survey also finds that 63% of respondents globally agree that the current economic climate is encouraging organisations to take regulatory risks in order to win new business. The rising importance of green issues is also included the report. When surveying institutional investors, 84% stated that ‘greenwashing’, by providing misleading environmental credentials, is becoming increasingly common.
“Despite greater regulation and stronger enforcement action, organisations in APAC are struggling to gain visibility over third-party risks and take appropriate action. Our report reveals an opportunity for APAC countries such as Singapore and Australia to strengthen due diligence efforts with only 48% and 54% of third-parties respectively undergoing due diligence checks, compared to 56% of companies in the region and 57% globally. With increased regulatory focus on issues such as green crime and illicit financial flows, companies cannot afford to fall behind in their risk management capabilities. Better data, greater innovation and new forms of collaboration play a critical role in mitigating risk in today’s fast-changing environment,” said Alfred Lee, Managing Director, Asia Pacific at Refinitiv.
Key Findings for Asia Pacific
- Third-party screening: Hong Kong (63%) leads the region in third-party due diligence, while Singapore (48%) records the poorest performance.
- Enforcement action: 58% of APAC respondents know of an enforcement action against their company in relation to a third-party risk, while 31% know of an enforcement action against a peer organisation.
- Drivers for due diligence: When asked to identify the most important reasons to carry out due diligence screening on third-parties, half (49%) of APAC respondents said it was to ensure regulatory compliance, 48% said it was to protect their company from reputational risk.
- Growing awareness of green risks: Awareness of green regulations appears to be high in APAC with, for example, The Illegal Logging Prohibition Act (63%) and Conflict Minerals Rule (62%) being regularly used to inform decisions on third-party risk management in the region.
- As a driver for conducting due diligence, Corporate Social Responsibility (CSR) (36%) and supply chain sustainability (35%) are cited as important factors by over a third of APAC respondents, higher than the global average of 32% and 29% respectively.
- Main challenges of implementing the right approach to identifying risk: 44% of respondents in APAC cite the lack of data available and 39% cite resource constraints including budget and time as key factors limiting their ability to identify risks.
“As regulators increasingly focus on sanctions, corruption, sustainability, and human rights, companies must upgrade their risk management capabilities in order to continue to reap the benefits from working with third-parties”, said Charles Minutella, Head of Enhanced Due Diligence at Refinitiv.
“Our report shows that many companies today are not taking necessary actions to protect themselves against the risk of criminal activity and regulatory enforcement. Additionally, the sentiment toward ongoing monitoring and reporting of breaches highlights the need for more overall due diligence resources, education and approaches. Better data, greater technological innovation and new forms of collaboration are crucial when it comes to reducing third-party risk.”
The findings of the report are based on a survey completed by nearly 1,800 global third-party relationship, risk management and compliance professionals in corporate organisations. The research was conducted in February 2020 across 16 countries, including: UK, USA, Brazil, China, India, Australia, Germany, France, Singapore, Spain, Hong Kong, South Africa. Russia, Saudi Arabia, the Netherlands, and Canada.
Re-disseminated by The Asian Banker
