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How to prevent, detect, and respond to third-party risks and disruptions

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How to prevent, detect, and respond to third-party risks and disruptions 1

By Marco Icardi, President, Europe, MetricStream

Organisations have become increasingly interconnected and third-party relations exist within almost every business. This interconnectedness has meant that even before the outbreak of COVID-19, there was a growing need for governance, risk, and compliance (GRC) teams to be resilient and better aware of the risks that are “unknown-unknowns”.

As soon as the current health disaster struck however, the focus on the effectiveness of GRC teams was intensified even further. Many businesses found themselves in a position where they had to pause operations entirely due to a breakdown with suppliers or were exposed to a multitude of new cyberattacks following the move to remote working and a dispersed and isolated workforce.

The impact of coronavirus has been severe and far-reaching and since there is no real end in sight, it is important that organisations take this time to delve into and analyse their third-party risk management process for the future.

Lessons to be learned

Over the years, many businesses have started to outsource more to third parties in various regions. When outsourcing to a third party, GRC teams will often assess the risks involved, including IT risks, corruption risks, operational risks, or business continuity risks. Without following this best practice, organisations could be exposed to multiple third-party data breaches, supplier failures, and other incidents which could affect brand reputation, credibility, and profitability.

While organisations may understand that there is a critical need for initial due diligence, exposure to risk does not end after a third party has been onboarded. In fact, a survey by Deloitte of executives responsible for governance and risk management of the extended enterprise found that one in five respondents had faced a complete third-party failure or an incident with major consequences. If there had been a greater focus on resilience and prevention efforts, the impact of these failures could have been minimised.

It is unsurprising that regulators have been calling for better third-party due diligence, including the Foreign Corrupt Practices Act (FCPA) and Anti-Money Laundering (AML), and have increased their focus on third-party governance and risk management.

This is an area which the pandemic particularly brought to light as many third-party suppliers and business continuity plans were tested with the rapid transition needed in business operations. In times of crisis when organisations strive to be prudent, the need to be on top of these external relationships is even more critical to avoid any punitive measures.

The action plan needed

Moving forwards, it is clear an action plan needs to be in place for businesses to ensure they have better oversight of their third-party relationships and their resilience as certain external suppliers can provide a critical function.

The first step towards achieving better due diligence is for third-party risk management objectives to be aligned with the business objectives, goals, and strategies. Through these integrated goals, organisations can build a more targeted third-party risk management program with specific controls and risk mitigation strategies to protect the organisation. It also becomes easier for GRC teams to have effective conversations around third-party risks with boards and executives.

Marco Icardi

Marco Icardi

As many workforces have currently relocated to their homes and are isolated from their colleagues, having a centralised and online repository set up makes it much easier for teams and third parties across the business to access information that they may need in a secure manner.

It is also important that each third party is screened and segmented on the associated risks before entering a contract. A good screening process will be well-defined and automated so that insights into potential risks associated with third parties can be established. During this stage, some information that can typically be collected may include financial health, IT risk, business dependence on third parties, availability of business continuity plans and much more. Within this process, risk segmentation is extremely useful as third parties can be scored based on risk and then categorised into various risk tiers.

This will in turn enable organisations to better define due diligence activities after the onboarding phase. Once this is done, periodic assessments and audits can then be planned to control any risks. To make this process more efficient, businesses can leverage technology to automate various assessments and audit workflows and the findings from these can determine further third-party analyses and remediation of issues in a timely manner.

Going the extra mile

Although regular assessments and audits can provide the business with much-needed data on a third party, organisations could go a step further and validate the information collected against content form reliable sources, such as Dow Jones. These sources offer deep insights into a third party’s profile, financial status, credit rating, regulatory compliance, cybersecurity risks, sustainability ratings, as well as any other data which can be used to strengthen third-party due diligence. It can also help to identify any risk areas that may have been missed.

Issue management may be the final stage in the third-party risk management process, but it is by no means the least important. It is a regulatory requirement to have an effective process in place for third-party issue identification, investigation, escalation, and reporting. Hence, it is crucial for an issue management framework to be established. Organisations should be able to track issues throughout the third-party life cycle, prioritise them based on their criticality to the business and resolve them in a timely manner by collaborating with internal departments, as well as third parties.

Through following the third-party risk management steps outlined above and by learning from the weaknesses that crises like the current pandemic expose, organisations will indeed be better prepared to prevent, detect and respond to third-party risks and disruptions moving forwards and avoid reputational and financial losses.

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Exclusive: China’s Huawei, reeling from U.S. sanctions, plans foray into EVs – sources

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Exclusive: China's Huawei, reeling from U.S. sanctions, plans foray into EVs - sources 2

By Julie Zhu and Yilei Sun

HONG KONG/BEIJING (Reuters) – China’s Huawei plans to make electric vehicles under its own brand and could launch some models this year, four sources said, as the world’s largest telecommunications equipment maker, battered by U.S. sanctions, explores a strategic shift.

Huawei Technologies Co Ltd is in talks with state-owned Changan Automobile and other automakers to use their car plants to make its electric vehicles (EVs), according to two of the people familiar with the matter.

Huawei is also in discussions with Beijing-backed BAIC Group’s BluePark New Energy Technology to manufacture its EVs, said one of the two and a separate person with direct knowledge of the matter.

The plan heralds a potentially major shift in direction for Huawei after nearly two-years of U.S. sanctions that have cut its access to key supply chains, forcing it to sell a part of its smartphone business to keep the brand alive.

Huawei was placed on a trade blacklist by the Trump administration over national security concerns. Many industry executives see little chance that blocks on the sale of billions of dollars of U.S. technology and chips to the Chinese company, which has denied wrongdoing, will be reversed by his successor.

A Huawei spokesman denied the company plans to design EVs or produce Huawei branded vehicles.

“Huawei is not a car manufacturer. However through ICT (information and communications technology), we aim to be a digital car-oriented and new-added components provider, enabling car OEMs (original equipment manufacturers) to build better vehicles.”

Huawei has started internally designing the EVs and approaching suppliers at home, with the aim of officially launching the project as early as this year, three of the sources said.

Richard Yu, head of Huawei’s consumer business group who led the company to become one of the world’s largest smartphone makers, will shift his focus to EVs, said one source. The EVs will target a mass-market segment, another source said.

All the sources declined to be named as the discussions are private.

Chongqing-based Changan, which is making cars with Ford Motor Co, declined to comment. BAIC BluePark did not respond to repeated requests for comment.

Shares of Changan’s main listed company Chongqing Changan Automobile rose 8% after Reuters reported the discussions. BluePark’s shares jumped by their maximum 10% daily limit.

GROWING EV MARKET

Chinese technology firms have been stepping up their focus on EVs in the world’s biggest market for such vehicles, as Beijing heavily promotes greener vehicles as a means of reducing chronic air pollution.

Sales of new energy vehicles (NEVs), including pure battery electric vehicles as well as plug-in hybrid and hydrogen fuel cell vehicles, are expected to make up 20% of China’s overall annual auto sales by 2025.

Industry forecasts put China’s NEV sales at 1.8 million units this year, up from about 1.3 million in 2020.

Huawei’s ambitious plans to make its own cars will see it join a raft of Asian tech companies that have made similar announcements in recent months, including Baidu Inc and Foxconn.

“The novel and complicated U.S. restrictions on semiconductors to Huawei have slowly been strangling the company,” said Dan Wang, a technology analyst with research firm Gavekal Dragonomics.

“So it makes sense that the company is pivoting to less chip-intensive industries in order to maintain operations.”

In the United States, Amazon.com Inc and Alphabet Inc are also developing auto-related technology or investing in smart-car startups.

Huawei has been developing a swathe of technologies for EVs for years including in-car software systems, sensors for automobiles and 5G communications hardware.

The company has also formed partnerships with automakers such as Daimler AG, General Motors Co and SAIC Motor to jointly develop smart auto technologies.

It has accelerated hiring of engineers for auto-related technologies since 2018.

Huawei was awarded at least four patents related to EVs this week, including methods for charging between electric vehicles and for checking battery health, according to official Chinese patent records.

Huawei’s push into the EV market is currently separate from a joint smart vehicle company it co-founded along with Changan and EV battery maker CATL in November, two of the sources said.

(Reporting by Julie Zhu in Hong Kong and Yilei Sun in Beijing; additional reporting by David Kirton in Shenzhen; Editing by Sumeet Chatterjee and Richard Pullin)

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Facebook switches news back on in Australia, signs content deals

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Facebook switches news back on in Australia, signs content deals 3

By Renju Jose and Jonathan Barrett

SYDNEY (Reuters) – Facebook Inc ended a one-week blackout of Australian news on its popular social media site on Friday and announced preliminary commercial agreements with three small local publishers.

The moves reflected easing tensions between the U.S. company and the Australian government, a day after the country’s parliament passed a law forcing it and Alphabet Inc’s Google to pay local media companies for using content on their platforms.

The new law makes Australia the first nation where a government arbitrator can set the price Facebook and Google pay domestic media to show their content if private negotiations fail. Canada and other countries have shown interest in replicating Australia’s reforms.

“Global tech giants, they are changing the world but we can’t let them run the world,” Australian Prime Minister Scott Morrison said on Friday, adding that Big Tech must be accountable to sovereign governments.

Facebook, whose 8-day ban on Australian media captured global attention, said it had signed partnership agreements with Schwartz Media, Solstice Media and Private Media. The trio own a mix of publications, including weekly newspapers, online magazines and specialist periodicals.

Facebook did not disclose the financial details of the agreements, which will become effective within 60 days if a full deal is signed.

“These agreements will bring a new slate of premium journalism, including some previously paywalled content, to Facebook,” the social media company said in a statement.

The non-binding agreements allay some fears that small Australian publishers would be left out of revenue-sharing deals with Facebook and Google.

“It’s never been more important than it is now to have a plurality of voices in the Australian press,” said Schwartz Media Chief Executive Rebecca Costello.

Facebook on Tuesday struck a similar agreement with Seven West Media, which owns a free-to-air television network and the main metropolitian newspaper in the city of Perth.

The Australian Broadcasting Corp has said it was also in talks with Facebook.

Google Australia managing director Mel Silva said in a statement published on Friday the company had found a “constructive path to support journalism”.

She thanked Australian users of the search engine for “bearing with us while we’ve sent you messages about this issue”.

Facebook and Google threatened for months to pull core services from Australia if the media laws, which some industry players claim are more about propping up ailing local media, took effect.

While Google struck deals with several publishers including News Corp as the legislation made its way through parliament, Facebook took the more drastic step of blocking all news content in Australia.

That stance led to amendments to the laws, including giving the government the power to exempt Facebook or Google from mandatory arbitration, and Facebook on Friday began restoring the Australian news sites.

(Reporting by Renju Jose and Jonathan Barrett; Editing by Richard Pullin and Jane Wardell)

 

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China’s factory activity growth likely moderated during February holiday lull – Reuters poll

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China's factory activity growth likely moderated during February holiday lull - Reuters poll 4

BEIJING (Reuters) – China’s factory activity likely grew at a slightly slower rate in February as factories closed for the Lunar New Year holiday, a Reuters poll showed, although growth is expected to remain firm, buoyed by an early resumption of production.

The official manufacturing Purchasing Manager’s Index (PMI) is expected to dip marginally to 51.1 in February from 51.3 in January, according to the median forecast of 20 economists polled by Reuters. A reading above 50 indicates an expansion in activity on a monthly basis.

Chinese factories typically scale back operations or close for lengthy periods around the Lunar New Year holiday, which fell in the middle of February this year.

However, the resurgence of COVID-19 cases in the winter had prompted local governments and companies to dissuade workers from travelling back to their hometowns, giving a boost to the earlier-than-usual resumption of production at many factories, analysts say.

“Although government COVID-19 prevention measures may constrain some manufacturing activities in the near-term, the fact that a majority of migrant workers stayed in their workplace cities for the holiday should facilitate an earlier resumption of business activity following the holiday this year,” said analysts at Nomura in a note to client on Thursday.

Wang Zhishen, a migrant worker from Gansu, told Reuters that his factory, a manufacturer of logistics boxes in the manufacturing hub of Dongguan, only closed for three days during the holiday, thanks to overwhelming businesses. Lured by the 1,500-yuan cash subsidy his factory offered, he chose to work through the holiday.

The Chinese economy has largely shaken off the gloom from the COVID-19 health crisis, with consumers opening up their wallets after months of hesitation. Growth is now set to rebound sharply this quarter, also helped by the low base effect of a year ago.

The country has successfully curbed the domestic transmission of the COVID-19 virus in northern China, with the national health authority reporting zero new local cases for the 11th straight day. Cities that were on lockdown have since vowed to push for a work resumption at full speed.

The official PMI, which largely focuses on big and state-owned firms, and its sister survey on the services sector, will both be released on Sunday.

The private Caixin manufacturing PMI will be published on Monday. Analysts expect the headline reading will dip slightly to 51.4 from 51.5 in January.

(Reporting by Stella Qiu and Ryan Woo; Editing by Sam Holmes)

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