Key Trends in Risk and Compliance in 2023
24 August 2023 15:10
- Risk Management
- Nexis Diligence+™
- Anti Money Laundering
- Due Diligence
- Ultimate Beneficial Ownership
- Risk & Compliance
We are already more than halfway through 2023, so if your business isn’t up to date on all the newest trends and shortcuts in the realm of risk mitigation and compliance, suffice it to say you’re falling behind.
This year, there is an even greater push on ESG compliance, protection from rising technology like AI and Crypto, and the general need for due diligence to avoid working with sanctioned third parties. Here are the most important things to be aware of right now, so that your company maintains its due diligence in this ever-changing era.
Increase in ESG and compliance regulations
Environmental, social, and governance (ESG) concerns are not only on the forefront of consumers’ minds, but they are also becoming more and more legally mandated across the world. The German Supply Chain Law, which went into place in January 2023, is one leader in the movement to ensure that companies are environmentally safe and respectful of human rights.
Said law requires all companies with business in Germany to complete due diligence and ensure that they are working with suppliers who are steering clear of poor labor conditions, negative environmental impact, and illegal child labor practices. It could be seen as a major indicator for what’s to come in other domestic and international ESG policies.
Continued use of sanctions or other enforcement actions
Another area with major growth this year is sanctions lists, which prevent companies from engaging in business with corrupt third parties. At the start of the Russia-Ukraine war, Russia became one of the most sanctioned countries on earth. That means that an increasing amount of business is blocked, and companies will be hit with legal action if they go against such regulations.
Already in 2023, there have been several public ramifications for businesses who have broken sanctions. For instance, in April, a UK-based tobacco company was fined $508 million by the US Treasury’s Office of Foreign Assets Control (OFAC) for “alleged violations of US sanctions against North Korea.”
Growing challenges surrounding ethics of technology
The topic on everyone’s minds this year has been the rise of new technologies, like the newly popular ChatGPT bot. As artificial intelligence becomes harder and harder to distinguish from reality, companies are at risk of crossing ethical lines. AI also sometimes mines the web for input to use in its final product, so companies might accidentally use stolen work if they aren’t careful.
For instance, if a company uses AI for their own content, they risk potential theft, as is what happened when an AI bot launched in late 2022 and artists claimed that the program had stolen their artwork to use as reference photos for the output.
Similarly, financial tech has seen challenges in the rise of Crypto currencies that have few safeguards. Using unverified programs, or working with Crypto funds that aren’t thoroughly researched, could lead to massive outcries and legal action for a business.
Need for Enhanced Due Diligence
At times, even normal due diligence processes are not enough to combat potential threats and pitfalls. Companies need to perform Enhanced Due Diligence (EDD) on higher-risk clients, like those from high-threat nations, those in industries with increased risk of fraud, or clients with questionable information.
EDD can include screening a potential client’s list of consumers to ensure that they have verification on their customers or taking a deeper look into the business’s owners.
Growing expectations around ESG due diligence
While ESG due diligence is becoming more internationally mandated (like the German law), it’s also increasingly expected. Nexis’s recent report, “The New Era of Due Diligence in 2023,” found that “ESG due diligence is now being demanded and used by sales teams and the C-suite to drive profit, not just manage risk.”
Consumers want to support companies that abide by human rights demands and are more positive for the environment, and that also means avoiding companies who work with non-compliant third parties.
Stay ahead of risk and compliance threats
To combat the growing number of potential threats, businesses are encouraged to employ third-party services that monitor and alert for potential dangers. Tools like Nexis Diligence will scan for ESG concerns, domestic and international sanctions, criminal records, and more sources that could be a concern within third-party exchanges. That way, you can be sure you maintain compliance—and have an auditable report to show you’ve done your due diligence.
Similarly, API sets offer big data insight and allow for data analysts to home in on the specific information they need by embedding the data into their own data models and programs. This helps you track any threats that are specific to your own company’s concerns in a way that works for you.
Trends in compliance are ever changing, so the right due diligence strategy—using the right technology—is the best way to stay ahead of any risk and protect yourself and your business.
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