Maintaining supplier due diligence is a monumental task for multinational corporations. It may not seem obvious, but they stand to learn valuable lessons from an unlikely source—the banking industry and its evolution in Know Your Customer (KYC) practices.
In this article, smartKYC’s CEO Dermot Corrigan, explores the relationship between KYC and supplier due diligence, and explains how the hard-won lessons of the KYC industry can now be applied effectively to multinational corporations supplier due diligence processes.
What is the relationship between KYC in banking and supplier due diligence in multinational corporations?
KYC, a process used by banks to verify the identity of their clients and assess their suitability and potential risks, has undergone significant transformation over the years. Spurred by evolving regulatory requirements, technological advancements, and shifting risk landscapes, this evolution offers key insights that multinational corporations can apply in their supply chain and supplier risk management. The following KYC best practices can be applied.
Rigorous due diligence as key
At the heart of KYC is thorough due diligence. Banks do this by gathering detailed information about their clients, including their identity, financial activities, and risk profiles, in order to get a complete profile of who they’re doing business with.
Similarly, multinational corporations need to conduct rigorous due diligence on their suppliers, diving deep into their business practices, compliance records, and ESG (Environmental, Social, and Governance) performance. This extensive workload has benefited from automation in KYC practices. The same advanced technology can be applied to multinational corporations’ due diligence processes.
Adopting a risk-based approach
Over the years, banks have shifted from a ‘one-size-fits-all’ to a ‘risk-based’ KYC approach, varying the extent of their due diligence based on the risk a client or third party presents. For example, a client in a high-risk jurisdiction or industry would require more intense scrutiny than one in a low-risk category. This risk-based approach is equally applicable to supply chains. Multinationals can prioritise their supplier due diligence efforts and resources based on the risk associated with a particular supplier, product, or region.
Maintaining ongoing monitoring
KYC is not a one-time process. Banks continuously monitor their clients’ transactions to detect unusual patterns, employing advanced technologies like Machine Learning and Artificial Intelligence to do so. This technology automates a labour-intensive process, allowing for an efficient, straight-through process. In the same way, the continuous monitoring approach can also benefit supply chain due diligence, enabling multinational corporations to respond promptly to changes in a supplier’s risk profile.
Achieving regulatory compliance
The evolution of KYC has been largely driven by an evolving regulatory landscape aimed at combating financial crime. Non-compliance can result in hefty fines, reputational damage, and loss of customer trust. Similarly, multinational corporations need to ensure their suppliers comply with all applicable laws and regulations; be it labour laws, environmental standards, or anti-corruption laws. Failure to do so can result in similar penalties.
Adopting advanced technology
KYC processes have been overhauled with each new technological advancement. Banks have adopted and leverage a range of advanced technologies, from data analytics and Natural Language Processing (NLP) to Blockchain, to streamline KYC processes, improve accuracy, and enhance customer experience. Of course, multinationals, too, can leverage technology in their supply chain due diligence. For instance, they can use NLP to conduct adverse media screening or Blockchain to ensure transparency in their supply chains.
Fostering collaboration
The complexity of KYC processes has prompted banks to collaborate; sharing information, best practices, and sometimes even pooling resources for KYC data collection and verification. We recommend that multinationals adopt a similar, collaborative approach. Consulting and collaborating with other businesses, industry bodies, or non-governmental organisations, gives multinational corporations the ability to share the burden of due diligence and drive industry-wide improvements.
The future of supplier due diligence for multinational corporations
Having observed the evolution of KYC practices in the banking industry over the course of my career, I believe it offers valuable lessons for multinational corporations striving to ensure the integrity of their supply chains. By adopting rigorous supplier due diligence, risk-based approaches, ongoing monitoring, compliance focus, technological adoption, and collaborative practices, they can build resilient, compliant, and ethical supply chains. These measures will not only protect them from risks but also enhance their reputation and contribute to their long-term success.
smartEYE: 24/7 risk vigilance
Our latest product, smartEYE, is a software application that watches organisations’ third-party relationships, 24/7, to identify emerging ESG or adverse media risks throughout the relationship.
Learn more about how smartEYE can protect your organisation from third-party risk by association and preserve your brand integrity.
About Dermot Corrigan
Dermot Corrigan is the CEO of smartKYC, an AI software business that specialises in intelligent automation of web and news media screening, with a focus on perpetual monitoring for financial crime compliance and third-party ESG due diligence. With a strong background in geopolitical and violent risk intelligence, reputational risk monitoring, and deep web and media search technology, Dermot offers unique insights into how banks can effectively and cost-efficiently use media content and software to identify and mitigate relationship risks, particularly in the area of adverse media.
Prior to his current role, Dermot held senior executive positions at Frost & Sullivan, a market analysis firm, and served as the Sales & Marketing Director of PR Newswire, the world’s largest corporate news and investor relations distributor. During his tenure as the leader of the news and business information division at LexisNexis (RELX PLC), Dermot launched the world’s first adverse media search engine. He also served as the CEO of a search technology subsidiary of the Independent Newspaper Group and led Exclusive Analysis, a specialist in political risk intelligence and forecasting, to its acquisition by IHS Markit, now Standard & Poor’s.
Before joining smartKYC, Dermot held the position of Chief Commercial Officer at Gorkana, a prominent social and mainstream media monitoring business that was later acquired by Cision.
Dermot is an expert in adverse media screening and has written previously on topics such as EU’s Corporate Sustainability Due Diligence Directive, multilingual natural language processing and has previously spoken at events such as AMLP Forum and xLOD.