A new report by Moody’s paints a concerning picture of a world facing mounting risks, with human trafficking, cyber-attacks, and sanctioned entities all experiencing a significant surge.
The report, leveraging data from Moody’s Grid risk database, reveals a near 14% increase in the number of individuals and organizations added to sanctions watchlists in just the past 14 months. This alarming trend is compounded by a near doubling of cyber-related risk events between 2022 and 2023, highlighting the growing threat posed by cybercriminals.
“These findings underscore the urgency for businesses to prioritize robust risk management practices,” said Keith Berry, General Manager for Compliance and Third-party Risk Management Solutions at Moody’s. “In an increasingly complex environment, failing to adequately vet potential business partners can have serious consequences.”
The report further emphasizes the growing regulatory burden on companies. New legislation like Germany’s Supply Chain Due Diligence Act and the UK’s Economic Crime and Corporate Transparency Act are placing stricter requirements on businesses to ensure ethical practices throughout their supply chains and prevent financial crime by third parties. The upcoming expansion of the European Union’s anti-money laundering regulations, which will encompass a wider range of entities, further underscores the evolving regulatory landscape.
Against this backdrop, Moody’s research finds that entity verification – the process of meticulously verifying the credentials of potential business partners – is critical for navigating this complex environment. The study reveals that a staggering 90% of risk and compliance professionals surveyed consider entity verification to be “essential” or “important.” However, the report also identifies significant challenges faced by businesses in effectively conducting entity verification.
“Data quality and governance remain major hurdles for many organizations,” said Berry. The study highlights issues such as data silos, high costs associated with data acquisition, and challenges in maintaining data accuracy and timeliness. These factors contribute to a situation where less than 10% of firms surveyed believe their data governance strategy is “advanced.”
The report concludes with a call to action for businesses to prioritize robust entity verification practices. “While the question of ‘who you are doing business with’ may seem simple, the answer can be surprisingly complex,” said Berry. “Investing in effective entity verification is no longer just about regulatory compliance; it’s about safeguarding your reputation, protecting your bottom line, and ensuring a secure and ethical business environment.”