Our Wired World

COVID & The Impact Of Compliance Gaps

How technology is reshaping risk

A groundbreaking study from Refinitiv, a risk-intelligence research firm, reveals the degree to which the pandemic has raised customer and third party risks, and the potential for technology to reshape them. Excerpts are provided below; Access the full report here.

Our survey reveals how the Covid-19 pandemic has significantly raised customer and third-party risks, but also highlights the potential of technology to reshape them. With a global death toll that has surpassed three million in 2021, the Covid-19 pandemic has changed the world forever.

For businesses and their employees, the pandemic continues to create severe day-to-day pressures, from keeping vital operations running to rebuilding fractured supply chains. In this environment, it is perhaps not surprising that organizations have found it harder to focus on third-party risks, resulting in more opportunities for criminals to defraud consumers and companies.

Taking Shortcuts

Our survey reflects companies’ difficulties, with 65% of respondents agreeing that the pandemic has forced them to take shortcuts with know your customer (KYC) and due diligence checks. Although Covid-19 has been extremely disruptive, compliance gaps had been a persistent problem long before the pandemic. Our 2019 risk survey found that 49% of third-party relationships had been subject to due diligence checks, compared to 44% in 2021. On a more positive note, our current survey shows a growing awareness of environmental, social and governance (ESG) factors and green crime, suggesting that the pandemic may have created a turning point.

Technology And Data Show Us The Way

By heightening and exposing risks, the pandemic is also helping organizations to address them. The best way to do so is clearly highlighted by our survey: technology, data and automation are not only enablers, they can also act as transformers. Organizations which use innovative technologies are not just better protected from customer and third-party risk, they are more aware of them and crucially are more likely to continue investing in further prevention and mitigation.

Collaboration Is Key

Another key trend seen during the pandemic has been greater collaboration – whether it’s between businesses, people or institutions – for the common good. Here, we find that those already using technology to combat financial crime are 60% more likely to collaborate with enforcement agencies than those not using such technology. This gives us renewed hope that the collaborative approach which we have long championed at Refinitiv – between enforcement agencies, innovators and non-governmental organizations, to name but a few – can be strengthened by recent events and enable us to forge a safer future, together.

Definitions:

What Is A Financial Crime?
The usual focus of financial crime investigation is on the illicit money flows from crimes such as money laundering, bribery, tax evasion, fraud and corruption that support human abuses including modern slavery, drug trafficking and prostitution. For the purpose of this report we have taken a wide definition covering all financial crimes to provide as complete a picture as possible on the social and financial impacts.

Organizations which use innovative technologies are not just better protected from customer and third-party risk, they are more aware of them and crucially are more likely to continue investing in further prevention and mitigation...

What Is A Third Party?
For the purpose of this report we have defined a ‘third party’ as any person or organization that is connected to a supply chain or is executing business on an organization’s behalf such as a supplier, distributor, agent and/or partner. Our definition of the term ‘third-party risk’ includes anything that could expose a company to threats and risks through engagement with third parties including bribery and corruption, modern slavery, environmental crime, wildlife trafficking or conflict minerals.

The term ‘third-party due diligence’ refers to assessment of the third party at the onboarding and ongoing monitoring stage to determine the risk profile.

What Is A Green Crime?
Green crime involves illegal activity that not only directly harms the environment but threatens our wildlife, impacts business supply chains, and poses a threat to security and stability around the world. In addition to environmental crime and wildlife trafficking, green crime also includes the flouting of regulations designed to prevent harm to the environment.

The consequences of green crime are far-reaching and it is gaining the attention of law enforcement agencies, regulators and, more recently, the technology sector. The European Union (EU) has included environmental crime as a predicate offense under the 6th EU Anti-Money Laundering Directive (6AMLD), and the new Financial Action Task Force’s (FATF) priorities for 2020 will focus on the illegal wildlife trade.

Compliance Gaps Persist: Fraud, Money Laundering & Corruption

  • 44% checks, compared to 49% in 2019 of survey respondents were under extreme pressure to increase 73% revenue because of Covid-19 of respondents said they were aware of financial crime over
  • 62% the last 12 months, compared to 72% in our 2019 report of respondents said that cybercrime became more difficult to 71% contain due to Covid-19-related remote working practices said they focus more on being regulatory-compliant rather
  • 64% than proactively trying to prevent issues
  • 40% of organizations said Covid-19 has made sanctions screening a greater priority 86% of respondents either use technology to support them with fraud detection or are looking to do so in the future

The Power Of Innovation: How Technologies Are Reshaping The Future Of Risk

  • 86% of respondents agreed that innovative digital technologies have helped identify financial crime
  • 91% of those who use technology in KYC/compliance are looking to improve financial crime detection and mitigation over the next 12 months
  • 60% of those who regularly use technology to prevent risks associated with financial crime are far more likely to have better collaboration with law enforcement agencies than those who don’t 45% of respondents believe that application programming interface (API) technology can significantly help reduce the risks associated with financial crime

Access the full report here.