Stay Ahead of Your Competitors with Our End-to-End Third-Party Risk Management Framework

Over the past five years, there's been an increase in third-party services and a surge in demand that comes with change across industries. From the pandemic to inflation, the rise in the necessity for technology also comes with a push to act sustainably. The Great Resignation has called for more accessibility, a need for more benefits (including an increase in paid time off and mental health days), and work-life balance concerns. There's an increased amount of data that companies and customers must manage, creating opportunities for more sustainable and intelligent solutions. Developing a robust third-party risk management (TPRM) system is imperative to a company’s success. Furthermore, an underdeveloped TPRM system can lead to the total collapse of a company given the recent debacle faced by Silicon Valley Bank.

Cloud computing, data management and security, privacy protection, and governance have shifted risk and compliance dynamics and expectations. Companies must adapt their strategy and structure to catch all options enabled by digital technology. This shift has caused management to evaluate the state of resources and companies' digital capabilities. As a result, increased measures have been implemented to secure information and provide a secure network for employees to work remotely and sustainably, transforming into a more digital world can be simple, but comprehensive. Third-party risk management (TPRM) helps with adapting new strategies and structures to catch all sustainable opportunities enabled by digital technology.

TPRM in the modern world: Regulations, risks and ESG responsibility

The lack of complete insight into all the operations of a third-party vendor associated TPRM with a high level of inherent risk. Many vendors lack total visibility into their own operations. This risk is compounded for companies working in the highly regulated financial sector, given that a third-party vendor may be working in a country with different regulatory standards. The vendor may not be accustomed to working within those standards.

Robust new international environmental, social, and governance (ESG) regulations from the European Union (EU) such as the Sustainable Finance Disclosure Regulation (SFDR), Corporate Sustainability Reporting Directive (CSDR), and the General Data Protection Regulation (GDPR) further muddy the waters for third-party vendors, as these regulations extend to both private companies and companies that aren't listed in the EU. Furthermore, the CSDR requires a company to report on the actions of its entire supply chain, including any third-party vendors. The cost of non-compliance with these regulations is particularly high, as seen by the billions of euros in fines levied against companies like Google by the EU. As new ESG regulations continue to emerge, it becomes increasingly critical for companies to develop robust inherent risk assessments for their third-party vendors.

Navigating the future demands of TPRM

The future of TPRM revolves around managing fourth-party vendors and having supplier contingency plans for when a third party incurs too much risk and must be replaced. Fourth-party vendors are third-party vendors used by the third-party vendor in its supply chain. When a company's suppliers and partners establish connections with other businesses, they are considered fourth parties to the organization. Managing fourth-party vendors directly is extremely challenging due to the distance from the original company’s own operations. To mitigate this challenge, due diligence performed on third-party vendors should include assessing how well those vendors performed due diligence on their own third-party vendors.

An example of this due diligence could be requiring third-party vendors to submit an SOC 1 Type II report that audits an organization’s ability to monitor its third-party vendors. Additionally, due diligence performed on third-party vendors should include an obligation for the vendors to notify a compliance officer about any relevant operations of the fourth party that could impact the original company. When viewed through an ESG lens, such information goes beyond data breaches and critical services provided or the location of the fourth party. It includes information such as the environmental impact and working conditions for employees of the fourth party. Finally, should the fourth party incur too much risk, the procurement team should create a list of suppliers that can step in and replace the third party.

Stay ahead of competitors and mitigate risk with NTT DATA's end-to-end TPRM framework

Given developments surrounding TPRM, such as new ESG regulations, increased data management and security requirements and a shift toward work-life balance, it's essential to stay ahead of competitors while insulating your company from additional risk. NTT DATA can help clients with protecting against potential damage caused by these developments with its end-to-end TPRM framework. This framework leverages automation to develop streamlined, repeatable, and scalable processes that allow NTT DATA to take actions swiftly and effectively, such as completing a risk assessment of new and existing third parties or conducting due diligence on third parties. Combining this framework with the experience of our consulting staff, specifically with ESG expertise, allows us to offer a holistic solution to any TPRM issue.

Learn more about TPRM developments and how to improve Risk Management & Compliance strategies.