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Third-Party Risk Management vs. KYC: What's the difference?
When working with corporate customers, one question often comes up: What is the real difference between third-party risk management (TPRM) and Know Your Customer (KYC)?
At first glance, these two disciplines may seem distinct from one another. But as compliance requirements evolve, especially around sanctions screening, the boundary between TPRM and KYC is becoming increasingly difficult to define.
Understanding their similarities, as well as their growing convergence, can help companies build more efficient, unified risk management frameworks.
How TPRM and KYC Have Traditionally Been Different
Third-Party Risk Management (TPRM) is historically a broad discipline. Its goal is to identify and mitigate a variety of risks across third-party relationships, including:
- Credit risk
- Cybersecurity risk
- Environmental, Social and Governance (ESG) risk - especially the "E" and "S" components
- Operational resilience
TPRM has typically focused on external partners such as suppliers, distributors, agents and contractors. Basically, entities that directly support a company’s operations but are not its customers.
In contrast, Know Your Customer (KYC) originated specifically within financial crime prevention. KYC processes are narrowly focused on verifying the identity of legal entities and natural persons, mapping ownership structures and assessing the risk of doing business with customers or investors.
Traditionally, KYC has been directed toward:
- Customers
- Investors
- Other direct financial counterparties
The methodologies were different. The targets were different. And the teams responsible were often located in completely separate parts of the organization: compliance running KYC and procurement managing TPRM.
Why TPRM and KYC Are Starting to Converge
However, the landscape has shifted. One major driver of convergence is international sanctions compliance. Today, every company - whether they are regulated or not - must ensure it's not doing business with sanctioned individuals or entities. This requires a deeper understanding of ownership structures across all counterparties, not just customers. As a result:
- TPRM processes must now include sanctions screening and beneficial ownership verification.
- Procurement teams managing supplier onboarding must perform checks that look increasingly like KYC.
In practice, both TPRM and KYC now rely on the same fundamental control principles:
- Collect information about the counterparty.
- Request documentation to support the information provided.
- Verify the data using internal analysis and external sources.
The main difference lies only in what type of information is collected, what documents are required and what level of verification is considered sufficient - based on the counterparty and the use case.
The Problem with Disconnected Processes
Despite these overlaps, many organizations still operate KYC and TPRM in silos. Compliance teams use one set of systems for KYC reviews of customers, while procurement or IT vendor teams use separate systems for supplier due diligence.
The result? Duplicated efforts, inefficient onboarding, inconsistent risk scoring and greater operational complexity.
It raises an important question:
Why not have a single, integrated platform and process that can manage all counterparties: customers, investors, suppliers and partners - under a unified risk framework?
With the right solution, companies can manage multiple types of questionnaires, customize requirements based on risk levels and create a more holistic view of third-party relationships.
Last Thoughts
The distinction between third-party risk management and KYC is becoming less about the process and more about the context. As regulatory expectations tighten and risk profiles grow more complex, companies that break down the walls between KYC and TPRM will be better positioned to manage compliance efficiently, reduce costs, and protect their reputations.
In today's environment, risk is risk - no matter which team manages the relationship.
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WANT MORE? SOME RELATED KYC ARTICLES
Why KYC Is No Longer Just for Regulated Companies
Why Perpetual KYC (pKYC) Is More Hype Than Reality—and What Needs to Change
Understanding the Differences Between Customer Due Diligence (CDD) and Know Your Customer (KYC)
