Of lately, many financial institutions have been fined for sanction breaches and their failure to identify Politically Exposed Persons (PEPs). This has resulted in tightened Know Your Customer (KYC) policies and various changes in the regulatory landscape. The implementation of the 4th Money Laundering Directive in the European Union is an example of this. This Directive requires organisations to perform a detailed PEP and sanction check when on-boarding new customers as well as during the ongoing review of clients to ensure that the organisation’s reputation, revenue, and capital are protected.
Sanction Screening: Filtering Sanctions in real-time
Over the period of last ten years, regulators across North America, Europe, and Asian Pacific regions have issued nearly $26 billion dollars in watchlist related fines. Famously, BNP Paribas wasfined $ 8.9 billion in 2014 for sanction violations. These AML watchlists are a compilation of various regulatory and enhanced due diligence lists from major sanctioning bodies around the globe, such as the OFAC, UN sanctions, EU sanctions, HM Treasury, and thousands of other regulatory and law enforcement lists like Interpol.
When should screening be take place?
AML compliance is a serious mandate from the regulators across the globe, with screening to be performed at crucial stages of the customer life cycle including:
- Client on-boarding – Information pertaining to the client and associated parties are captured and screened when the client is newly on-boarded on system,
- Transaction screening – Transactions such as cross-border remittances, trade finance, etc. are monitored for screening beneficiary information,
- Periodic review – Conducted on a periodic basis to ensure that existing customer information is kept updated, and screened accordingly,
- Trigger review – When any material change impacts the risk rating of the customer such as a change in the shareholders or the addition of a new business line. It is mandatory that the existing parties and the new parties are screened,
- Ad-hoc review – Such screening is performed when there is a special request by either the regulatory or law enforcement agency to fulfil any specific obligations or to clear any backlogs in order to satisfy the current regulatory obligations.
Types of screening
The two main principal objectives of any robust screening programme are
- Sanctions screening: To not allow financial transactions with any parties on the global law enforcement and sanctions list,
- PEP screening: To undertake CDD on high-risk customers such as in case of involvement of PEPs.
Both should be done in real-time, since names are added to watch lists, and deleted, continually and the results should be available within seconds.
Challenges in AML screening services
Complying with AML regulations is not easy. Financial institutions across the world face various challenges in achieving a robust screening programme. Some of these challenges include:
- Continuingly evolving regulations and existing policies causing gaps in current systems.
- Diverse data sources containing poor data quality from untrusted sites.
- Inadequate technology infrastructure
Road map to a comprehensive watchlist screening programme
Prior to launching a screening programme, financial institutions have to take measures in determining the status of their screening programme. This enables these institutions to draft out a comprehensive road map for the implementation of a full-scale screening programme.
How financial institutions use watchlist screening for regulatory compliance
In order for financial institutions to protect themselves from being victims of financial crime, they can focus on eliminating bad actors by screening against various data sources. In doing so, financial institutions have complete transparency and flexibility to accommodate intensifying sanctions such as the addition of Russian oligarchs, or politicians in the high-risk countries to PEPs lists.
Achieving an effective screening programme relies on multiple components such as strong governance and control, powerful datasets, technology partner and detailed alert investigation methodology. As a priority, financial institutions should connect with a strong screening technology service provider who can:
- Process data promptly and efficiently from a wide variety of datasets
- Employ an efficient and effective matching algorithm
- Possess a clear audit trail of investigations and resolutions
About NameScan
NameScan specializes in PEP and sanction screening, assisting businesses in meeting their AML requirements. The third-party service allows businesses to reduce their manual work and identify risks more effectively with a reliable database consisting of world-renowned lists. With an extensive set of databases of individuals and organizations, NameScan also offers various search parameters and match rules to suit a business’s specific requirements and regulatory frameworks. Through its “fuzzy matching” search capability, this enables businesses to screen more precisely and reduces false positives. It is built for easy API integration via the RESTful API and can be seamlessly integrated into existing systems.
Check out how NameScan’s PEP & Sanction Screening services can help financial institutions to:
- Stay complaint with changing sanctions and strengthen the screening process to meet global regulations
- Increase efficiency with tailored risk-based screening and monitoring to reduce unnecessary false positives
- Exceed regulator expectations with the most up to date databases