In today’s interconnected business environment, organisations rely on a complex web of third, fourth, and even nth-party suppliers (spanning many tiers of the supply chain) to maintain operations. Critical Third Parties (CTPs) are external entities that provide essential services to financial institutions, technology firms, and many other organisations that are not directly connected to the financial services sector but play a crucial role in maintaining operational continuity. These services can include technology infrastructure (data centres), data analytics, cloud computing, and more.
CTP’s, however, are not the only stakeholders that require focus; third parties of all sizes play roles in supporting the operations of many organisations. This dependence on external services introduces potential vulnerabilities and exposes organisations to a range of risks.
Today, organisations have implemented various supplier assurance activities to gain visibility into these risks. These activities include:
- Strengthening contractual arrangements and expectations: Defining the supplier’s obligations, performance expectations, and risk mitigation strategies within contracts.
- Defining standards: Establishing clear standards for quality, security, and performance that suppliers must adhere to.
- Segmentation based on risk: Categorising suppliers based on their inherent risk profiles, allowing for tailored assurance activities.
- Supplier questionnaires and audits: Gathering information from suppliers about their capabilities, processes, and risk management practices. Then conducting periodic audits to assess the supplier's compliance with agreed-upon standards and contractual obligations.
- Monitoring of compliance: Monitoring on a continuous basis of controls, technology vulnerabilities, performance and adherence to relevant regulations and industry practices.
Despite these efforts, supply chains remain susceptible to disruptions and vulnerabilities. To address this challenge, a new approach is required to combine data insights, technology, and process enhancements to embed resilience and continuity of operations. These capabilities include:
- Scenario testing: Simulating potential disruptions and assessing the impact on the organisation's operations. By identifying potential vulnerabilities and developing mitigation strategies, organisations can proactively address risks before they materialise.
- Risk quantification: Assigning a numerical value to the potential impact of risks to be more objective, using a data-driven approach to risk management. This enables organisations to prioritise mitigation efforts and allocate resources effectively.
- Threat intelligence: Gathering and analysing information about emerging threats and vulnerabilities in the supply chain to identify potential disruptions and take proactive measures to mitigate risk.
- AI powered continuous monitoring: Assuring compliance through real-time monitoring of contractual and service performance to bring early detection and rapid response to emerging threats. This includes due diligence data gathering, chatbots for vendor onboarding, contract analysis, assessment data analysis and many other use cases. Taking this proactive approach enhances risk management, minimises the impact of disruptions and ensures business continuity.
- Industry collaboration: Sharing insights and experiences by collaborating with firms, financial market infrastructure firms (FMIs), industry groups, and other stakeholders to ensure a comprehensive assessment of supply chain resilience.
Organisations must test their ability to continue provide material services in the event of severe disruptions. Scenarios may include cyberattacks, natural disasters, supply chain disruptions, and other plausible threats. By simulating scenarios, CTPs can identify weaknesses and strengthen their response mechanisms.
By adopting this comprehensive approach, organisations can gain a deeper understanding of their supply chain risks, develop effective mitigation strategies, and ensure the resilience and continuity of their operations in an increasingly interconnected and complex business environment.