Counterparty risk
The probability that the other party will fail to perform its obligations or will create legal, financial and reputational consequences for you - including risks arising from its own connections.
Practical significance
Counterparty risk is broader than the question of solvency: a company may be able to pay, yet carry sanctions, corruption or reputational risks that pass on to you. For this reason, a counterparty check assesses both the ability to perform and the consequences of the connection itself.
Where it is used
- entering into contracts and advance payment
- compliance procedures
- selection of suppliers and intermediaries
- assessment of a portfolio of counterparties
What the term does not mean
Is not limited to a review of financial statements: a significant part of the risk lies in the ownership structure, connections and history of disputes.
How it differs from «Reputational risk»
Counterparty risk concerns a specific relationship with a specific party. Reputational risk is broader and affects the perception of the company as a whole. More about this term
Illustrative example
A financially sound supplier belongs to a structure connected to a sanctioned person: the contract creates a risk unrelated to its solvency.
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Definition verified 3 August 2026
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