This month Refinitiv, an LSEG business, published the findings of its global risk management survey. The report highlights how the COVID-19 pandemic substantially increased customer and third-party risks, and that technology holds the potential to help organisations respond to the risk challenge.

Pandemic pressures

The survey found that respondent organisations were under mounting pressure to increase revenue (73%) and profits (65%) due to the COVID-19 pandemic. As their organisations were burdened to keep operations and disrupted supply chains running, the survey found that 65% of organisations took shortcuts with KYC and due diligence checks - significantly increasing their risk exposure. Only 44% of respondents conducted initial formal customer or third-party due diligence checks, a 5% drop compared to Refinitiv’s 2019 survey (49%).

When it comes to due diligence checks, by region, Europe was the lowest performing (40%) while Sub-Saharan Africa (56%) the highest. A focus on rapidly forging new third-party relationships also created an environment with reduced sanctions screening, with only 40% of organisations making screening a priority and 56% of respondents admitting they did not fully manage risks related to sanctions screening. Regulators also eased pressure on organisations; compared to Refinitiv’s 2019 report, pressure from governments (75%), regulators (67%) and corporate boards (64%) was considerably lower during the pandemic.

The new remote working culture during the pandemic made it more difficult for organisations to manage cyber risk, as 71% of organisations stated that operating with a remote workforce made cybercriminal attacks harder to contain. This was the impetus for half (51%) of organisations making cybercrime a priority during the pandemic. Fraud was also a big focus, with companies dedicating substantial resources (20%) to combatting this aspect of financial crime, followed by 16% for money laundering and 14% to cybercrime and theft.

"COVID-19 plunged many organisations that already had fragile third-party networks into an uncertain, turbulent and very competitive market and forced them to rapidly expand their vendor network as they struggled to protect critical supply chains from disruption," said Phil Cotter, global head, Customer & Third-Party Risk at Refinitiv. "Looking back at the lessons learned over the past 16 months, it is clear that businesses must close the compliance gap and focus on building a resilient supply chain with due diligence and financial crime prevention at its core. As organisations slowly recover from the COVID-19 impact, we expect an increase in technology investment as they seek new way to address customer and third-party risk challenges."

Technology and ESG factors

The report highlights the power of technology innovation, with 86% of respondents reporting that innovative digital technologies have helped them identify financial crime, and 91% of technology champions stating they will look to improve financial crime detection and mitigation over the next year. 

There is increased appetite for emerging technologies, as 43% of organisations report they are under extreme pressure to increase revenue due to the pandemic and are interested in deploying artificial intelligence (AI) and machine learning to fight financial crime. The survey also found that the COVID-19 pandemic has prompted greater collaboration across industries and between businesses, people or institutions, and links this trend to the use of technology. Organisations already using technology to address financial crime are 60% more likely to collaborate with law enforcement than those not using technology.

"The COVID-19 pandemic negatively affected organisations and communities across all regions, but it also sparked a desire for private-public collaboration and working together toward the common good," added Cotter. "At Refinitiv we have long advocated for fighting financial crime through collaboration and cross-industry partnerships, and we’re excited to share our expertise and platform to work with like-minded organisations to address global risk threats."

Another positive change the research highlights is the increased importance of ESG to organisations and the emphasis on green crime. The survey shows that two thirds of organisations are concerned with ESG factors when it comes to due diligence and 43% of respondents consider emerging threats such as green crime a priority, highlighting the link between green crime, corruption and money laundering.

Methodology

The report findings are based on a survey completed by nearly 3,000 managers in large organisations with an annual average turnover of US$24.3bn/£17.2bn, who are either knowledgeable or involved in regulatory compliance and practices. The research was conducted in March 2021 across 30 countries, including the US, UK, Canada, Brazil, Argentina, Mexico, Germany, France, Netherlands, Italy, Spain, Russia and Poland.