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12-step ABAC strategy for Banks: ensuring compliance with third-party risk management regulations in support of an anti-bribery and anti-corruption control framework

Bribery involves someone giving money or gifts (i.e. a bribe) to someone in power to influence their decisions or actions, which is both illegal and unethical. Corruption is dishonest or illegal behavior, which involves abusing power for personal gain or the benefit of others unfairly.

Third-party risk management (TPRM) and anti-bribery and anti-corruption (ABAC) controls are crucial for banks due to the risks and regulatory requirements associated with both bribery and corruption.

Third-party risk management (TPRM): bribery and corruption risks

Banks increasingly rely on third-party relationships to access new technologies, services, and markets, which can enhance competitive advantage and operational efficiency. However, these relationships introduce risks, including operational, compliance, financial, and strategic risks.

Effective TPRM ensures banks can identify, assess, monitor, and mitigate these risks to maintain operational control and compliance with legal and regulatory requirements. For instance, third parties can expose banks to cybersecurity threats, supply chain disruptions, and compliance risks related to data protection laws like GDPR and PSD2 and the upcoming PSD3.

Therefore, robust TPRM programs are essential to safeguard against vulnerabilities and engage with an ever-increasing set of data available to ensure a bank's resilience and regulatory compliance.

Anti-bribery and anti-corruption (ABAC) controls

ABAC controls are equally vital as they protect banks from legal and reputational damage. Banks are subject to stringent regulations that prohibit bribery and corruption, and failure to comply can result in severe penalties, loss of trust and reputational damage.

Implementing strong ABAC controls helps banks prevent illegal and unethical practices within their operations and third-party relationships, and fight against predicate offenses and proceeds of crime being laundered. This includes conducting due diligence, ongoing monitoring, and ensuring that third parties adhere to the bank's ethical standards and legal obligations.

Effective ABAC controls not only ensure compliance with laws but promote a culture of integrity and transparency in the banking ecosystem.

12 best practices for anti-bribery and corruption

TPRM and ABAC controls are key to banks as they help manage risks, ensure compliance, and maintain operational integrity, thereby protecting the bank's reputation and financial stability.

Here are 12 best practices identified by Moody’s in the industry:

  1. Implement a comprehensive third-party risk management framework (TPRMF): Develop a board-approved policy that outlines the bank's approach to managing third-party relationships. This framework should align with the bank's overall risk appetite and business strategy.

  2. Conduct thorough risk assessments: Perform comprehensive risk assessments before entering into third-party relationships and continue to assess risks throughout the lifecycle of the arrangement. This includes evaluating operational, compliance, financial, and strategic risks associated with each third-party relationship.

  3. Enhance due diligence processes: Implement rigorous due diligence procedures to identify and assess potential third-party relationships. This should include evaluating the third party's financial stability, operational capabilities, and compliance with relevant laws and regulations.

  4. Establish clear contractual agreements: Develop detailed contracts that clearly define roles, responsibilities, performance expectations, and compliance requirements for third-party vendors.

  5. Implement ongoing monitoring: Regularly monitor third-party relationships to ensure continued compliance with contractual terms and regulatory requirements. This may include periodic audits, performance reviews, and assessments of the third party's risk management practices.

  6. Maintain in-house expertise: Ensure that bank staff have adequate knowledge and experience to effectively identify, assess, manage, and monitor risks associated with third-party relationships.

  7. Leverage technology: Use emerging technologies such as AI, machine learning, and blockchain to enhance third-party risk management processes, including automating due diligence, risk assessment, and continuous monitoring tasks.

  8. Develop robust reporting mechanisms: Implement clear reporting processes to keep senior management and the board of directors informed about third-party performance, risks, and any necessary mitigating actions.

  9. Plan for contingencies: Develop exit strategies and contingency plans for critical third-party relationships to ensure operational continuity in case of service disruptions or contract terminations.

  10. Focus on data security and privacy: Implement strong controls to protect customer data shared with third parties, including evaluating the third party's information security practices and ability to comply with relevant data protection regulations.

  11. Conduct regular training: Provide ongoing training and awareness programs for bank staff involved in managing third-party relationships to ensure they understand regulatory requirements and best practices in third-party risk management.

  12. Engage in continuous improvement: Regularly review and update the TPRMF to address emerging risks, regulatory changes, and lessons learned from past experiences with third-party relationships.

By implementing these strategies, banks can strengthen compliance with relevant third-party risk management regulations and better protect themselves against the risks associated with outsourcing critical functions and services.

Get in touch

Moody's can help banks automate third-party risk management and anti-financial crime compliance processes across any jurisdiction. Digitally transform enhanced due diligence and ongoing risk monitoring. Perform risk assessments on individuals and entities in your third party network and make decisions with confidence about who you work with.

We also offer intelligent screening solutions to identify government officials, public officials, and other politically exposed persons (PEPs) in your network, as well as comprehensive adverse media screening leveraging machine learning to reduce false positives.

For more information on how Moody’s can support your ABAC strategy, please get in touch - we would love to hear from you.