Supply Chain Due Diligence: What Multinational Corporations Can Learn from Banks

In today’s complex and increasingly regulated business environment, multinational corporations are challenged to ensure the integrity and compliance of their expansive supply chains.

As they navigate the task of supplier due diligence, they stand to learn valuable lessons from an unlikely source—the banking industry and its evolution in Know Your Customer (KYC) practices.

What is the relationship between KYC and supplier due diligence?

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.

1. Rigorous due diligence: At the heart of KYC is thorough due diligence. Banks gather detailed information about their clients, including their identity, financial activities, and risk profiles, to understand 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. 

2. 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.

3. 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.

4. 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.

5. Technological adoption: Over the years, KYC processes have been transformed by technology. Banks now use a range of technologies, from data analytics and Natural Language Processing (NLP) to Blockchain, to streamline KYC processes, improve accuracy, and enhance customer experience. 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.

6. 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. This collaborative approach can be adopted by multinationals as well. By collaborating with other businesses, industry bodies, or non-governmental organisations, they can share the burden of due diligence and drive industry-wide improvements.

The evolution of KYC practices in the banking industry 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.

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