Monitoring the Financial Health of Counterparties in 2023
This blog discusses what alternative signals from adverse media monitoring can indicate potential financial risk related to your counterparties. Secondly, we share how a comprehensive technology adoption approach can be a cornerstone of a strong Counter Party Risk Strategy (or TPRM Strategy).
Persistent Economic Uncertainty Remains
Peaking inflation, rising interest rates, war on the European continent, and continuing supply chain disruptions caused by COVID-19 policies in China are just a few factors contributing to an overall decline in economic security and stability. As a result, companies make difficult decisions such as reducing staff, rationalizing their offerings, and/or closing down parts of the organization to remain financially viable.
The Benefits of Utilizing Alternative Data Sources to Navigate Uncertainty
Having alternative information about the (counter)parties in your value chain, support functions, and the marketplace is an important step in navigating uncertainty. Continuous ingestion and monitoring of alternative data sources significantly increase the opportunity of receiving early and timely signals of potential risk events about legal entities, brands, and people.
Exploring the Role of Technology in Counterparty Risk Management at Scale
Key players in the counterparty risk management space1 recognize the value of consistent, continuous monitoring. But how can organizations do this at scale, without large investments upfront and without requiring armies of employees to interpret the information? And what role does technology play in this field?
Classic Indicators for Measuring Financial Strength
Traditionally, organizations use credit ratings and earnings reports to get an independent view of a counterparties’ financial strength. This forms the basis of a decision on whether or not to enter into a business relationship. Although this type of information can be sufficient during the onboarding of a counterparty, there are some important comments to be made about the timeliness of this information.
The Power of Up-to-Date Financial Information
A well-heard complaint from users is that the financial information received from classic services is outdated and does not meet timeless requirements. In today’s global and online economy, changes in financials can happen quickly and therefore having, financial data that is weeks or sometimes months old imposes a big risk. Reasons for these delays are understandable. However, the need for more information faster cannot be neglected. This brings alternative indicators into play. After all, knowledge is power; the more you know, the more you can do!
Assessing Financial Risks Through Alternative Indicators
Want to know if a company or person is a financial risk? Look no further than customer reviews, fraud reports, court documents and accusations of money problems. These “alternative indicators” can give you the inside scoop on a company or person’s financial health. For example, if a company is accused of not paying their bills, it could mean they’re in hot water. And, if a company is in a legal dispute, like a bankruptcy, it could also be a red flag.
By regularly checking these sources, organizations can spot potential financial risks and take steps to avoid them. For example, if a company is accused of fraud, an organization can protect itself by steering clear of them. Financial institutions must also check these sources to follow the rules set out by regulators against money laundering and terrorism.
The Benefits of Using Natural Language Processing to Monitor Financial Risks
Using natural language processing (NLP) can make it a breeze to monitor sources for adverse media. NLP can automatically read and understand large amounts of unstructured data, like customer reviews and court documents, to find patterns that could indicate financial risks. Moreover, NLP can set up alerts to notify organizations of potential risks as they happen, like an early warning system. Therefore, alternative indicators and NLP can help organizations make smart and informed decisions and better manage financial risks.
Integrate Owlin’s NLP Capacities into Your Workflow
Do you want to learn how the Owlin platform can help you stay in the know of the health of your counterparties? We’d be happy to explain our real-time global adverse media monitoring options for managing counterparty risk!
Authors
Stefan Peekel, Chief Growth Officer
Judith Landstra – de Graaf, Marketing Lead