Best practices for automating third-party due diligence

Firms are increasingly responsible for the actions of their third parties. In the past, firms screened all their third parties and reserved enhanced due diligence for a smaller, higher-risk subset. However, globalised supply chains and regulatory pressure on managing third-party risk means firms need to decrease that threshold to scrutinise all third parties more closely. This has created significant opportunities for sophisticated automation tools. 

Due diligence challenges researchers face today

The sheer volume of online data can overwhelm even the most diligent compliance team. Information about third parties is scattered across corporate records, sanctions lists, blogs, press releases, and news articles. Historically, researchers would stitch it all together manually. 

Cross-referencing information across lots of sources has many challenges. One of those is cognitive overload: researchers must mentally organise and link information, which increases the likelihood of mistakes such as misidentifying false positives or missing subtle connections.

Read more: Strengthen AML risk management by learning the story of clients

Automation removes manual limitations 

Automation makes deep due diligence a more efficient process. It reduces it from days to hours or even minutes, enabling compliance teams to conduct thorough investigations quickly.

Xapien is highly effective because it analyses structured data (like databases) and unstructured data (from news sites, corporate websites, and blogs). This comprehensive data coverage ensures thorough verification and minimises false positives.

This significantly changes the role of researchers. Instead of spending days gathering data, they now focus on analysing outputs to make informed decisions. This change is valuable in today’s fast-paced information landscape, where the ability to make quick decisions is crucial.

Automated due diligence best practices

Not all compliance teams have the same requirements. Here are a few due diligence automation best practices to consider.

Assess your current framework

Look at your current due diligence processes and where automation can be applied. Pinpoint the main bottlenecks and consider how technology could remove them. This approach will help create a strong business case for adopting new tools. 

Choose the right vendor

Choosing the right provider for your firm can mean the difference between a streamlined, successful due diligence process and a complicated tool that no one on your team wants to use. You’ll want to consider:

• Is the technology capable of growing and adapting as your business expands?
• Would it seamlessly integrate with your existing software stack or need changes?
• Does it meet industry-specific regulatory requirements?
• Does it offer robust customer support and training resources?
• Can the provider share user testimonials and case studies?

Read more: 20 questions to ask: Law firm buyers guide to compliance tools

Prioritise ease of use 

Training is essential to ensure that your team members can effectively use the tool. Smaller firms should consider solutions that require minimal training, so they can use it straight out of the box. For instance, Xapien requires no prior training or AI knowledge. Users simply need to input a name and an additional piece of context, such as a website or company, to produce a comprehensive due diligence report. 

Why the future of due diligence is AI-powered  

AI-powered due diligence represents the future of compliance, offering unparalleled efficiency and risk mitigation. It empowers firms to navigate complex regulatory landscapes with agility and confidence. The benefits it offers include:

Speed and efficiency

The vast amount of information available online is both a resource and a challenge due to its sheer volume and the speed at which it grows. Xapien can quickly sift through this data, selecting the most relevant information and presenting it in an actionable format almost instantly. This rapid processing and delivery are crucial in a fast-paced information environment, where timely decision-making is essential.

Data consolidation and accuracy

With increasing online data, distinguishing accurate and relevant information becomes more complex. Automated systems excel at parsing through extensive datasets, including structured and unstructured data from various sources—even those in different languages or from “grey literature.” Xapien is particularly strong at reducing false positives and ensuring that crucial data is not overlooked.

Focus on strategic decision-making

Manual due diligence is often unreliable and cumbersome, prone to errors, and difficult due to the volume of data. An automated platform can perform the intensive work of many individuals more efficiently and consistently, allowing human teams to focus on analysis and strategic decisions rather than data collection.

Growth opportunities

Beyond risk mitigation, automated due diligence can uncover growth paths and beneficial relationships hidden within data. This supports firms in both protecting and expanding their operations.

Read more: 5 reasons automated due diligence is the future

How can automation support your compliance team?

Firms face high expectations from the regulator and more nuanced questions to answer about third parties. The ability to perform deep due diligence at speed is more important than ever. However, many current tools are unwieldy and cost too much to run. As regulatory and reputational risks evolve, firms need more sophisticated tools to manage that third-party risk. Only automation can help firms do this depth of research, not just in minutes, but much earlier in the relationship. And, only AI enables them to look at third parties through a broader risk lens. Fill out the form below to learn more.