How Banks Can Improve Transparency in Procurement for Better Compliance
Posted by Andrea Biganzoli, JAGGAER - Director, Head of Vertical Financial Sector in Financial Services / Indirect Solutions on May 7, 2019
Banking is a unique industry in many respects. It’s one of the most profitable, but also one of the most competitive. Procurement in Banking also faces unique challenges due to the tough regulatory compliance environment that sets limits on how Banks can achieve goals like cutting costs.
But there’s another aspect, often overlooked, that sets the banking industry apart. A bank’s suppliers are, in most cases, also its customers. And this provides enormous scope for conflicts of interest for individual employees, for departments, and for the bank as a whole.
Let’s say, for example, a supplier of facility management fails to meet its contractual obligations, causing the bank to make substantial losses. The bank’s Chief Procurement Officer may want to change vendor. He is likely to come under pressure to do so. But if (as is likely) the vendor is also a customer, for example one that recently received finance for a new warehouse, the Chief Operating Officer and customer relationship managers may have other ideas.
There is also, of course, plenty of scope for bribery and corruption.
Procurement’s Role in the Banking Industry
Since the financial crash of 2008, procurement has taken on an increasingly important role in the sector for another reason: strategic suppliers all present various kinds of risk to the bank. These include operational risk, should they fail to perform as expected, and credit risk should they encounter financial difficulties, such as default on loans. To address such risks, the Bank Recovery and Resolution Directive (BRRD), which gives central banks the power to intervene if a failing bank poses a public risk, is being adopted into national law of European Union member states.
Procurement teams, therefore, have a vital role to play. They will need to be able to work in close collaboration with internal and external auditors as well as the compliance and risk teams. To do this effectively, Procurement will need to take steps to ensure governance and transparency within their organizations, and in Banking, this is often easier said than done.
How Choosing the Right Spend Management Solution Can Help
Mature spend management solutions can help Procurement overcome these challenges in a number of ways. The JAGGAER ONE platform provides banks and other financial services organizations with the robust tools they need to gain visibility into supplier operations and risk, helping to build a true picture of what is really going on in the supply chain. Integrating with any ERP, risk management, regulatory compliance or other software, JAGGAER ONE allows procurement to work with other stakeholders within a bank to collate and centralize supplier and contractual information across the enterprise and share insights with senior leadership.
It also provides a platform which suppliers can work with to upload and update information such as certifications, financial disclosures, remittance and contract details, products, services and other information required to calculate risk factors.
Should things go wrong, such as failure to comply with a contract, the information is there for evidence-based decisions and discussions with suppliers.
Absolutely key to this transparency is having all of the information available in one place, all the way from procure to pay. Many of the world’s leading banks and financial services companies rely on JAGGAER ONE technology to ensure:
- Tracked and rigorous procurement processes
- Strongly guided purchasing processes
- Effective management of suppliers’ qualification and segmentation to ensure compliance with European Banking Authority regulations
- Easy integration with all systems that act as information providers
- Easy and fast extension of the solution to new branches or divisions, in a sector segment characterized by frequent mergers and acquisitions
About the Author
Andrea Biganzoli is a Business Development Director and Head of Vertical Financial Sector at JAGGAER.