Russia’s invasion of Ukraine, and the subsequent introduction of a global sanctions regime, have directed an unforgiving spotlight on client screening systems in financial organisations across the world. The ripples have spread widely - businesses outside the world of banking are also waking up to the reputational risk of inadequate or non-existent screening solutions.
Regulators have long demanded that compliance teams take a risk-based approach to client screening, and resources – both human and financial – have been stretched to manage the difficulties of delivering on this requirement.
With no end to the current geopolitical turmoil, and an increasing worldwide focus on the activities of corrupt international elites, the pressures on financial institutions to screen effectively and efficiently in an ever more volatile macro environment are intense.
How then should an AML compliance professional go about building a screening solution which can respond to today’s challenges while remaining sufficiently flexible and responsive to manage those of tomorrow?
1.Set your rules
Every organisation will have different rule sets according to its level of exposure to, and appetite for, risk. Being able to decide on your rules, adjust according to new information or new circumstances, all while responding to external volatility, is essential to building resilience into your system – more on how to design and test your rule set later.
At the outset you need to decide who to screen - and this won’t just necessarily be customers. Partners, shareholders and beneficial owners may be included in your process. Then you should consider how often you screen, and what metrics you screen against. The latter consideration should be broader than simply those on sanctions lists, but should also include PEPs. The changing perspectives and evidence around PEP screening presents compliance officers with challenges around developing rule sets appropriate for low and high-risk countries. As ever, flexibility is key.
As sanctions lists are constantly evolving, financial institutions need to keep pace with new additions to lists and to ensure removal of entities no longer under scrutiny.
The nature of sanctions is becoming more complex as they move from specific named entities to new sanctions targeting sectors and prohibiting specific activities, all of which can be open to interpretation. Agility is essential.
2.Check your data quality and introduce AI
It’s stating the obvious to say that data needs to come from trusted sources and should be accurate and complete. It’s also worth noting that good secondary data points are valuable in that they can enable you to auto close alerts more quickly. De-duped lists mean that you’re not wasting time double screening.
With sanctions and PEPS lists changing on a daily basis, the ability to update lists and respond quickly is essential to effective compliance.
Drive down false positives by using Artificial Intelligence to match data points. AI has transformed the process of fuzzy matching, delivering a highly sophisticated ability to identify similar but not identical elements in customer data, picking up nicknames, spelling errors and so on. Once an alert has been created for a potential match, you then deploy machine learning to help you optimise your decision making processes in terms of whether to discount the alert or not.
The addition of such explainable AI is a ‘must-have’ in an effective screening programme. Once an alert has been created for a potential match, you then have machine learning that can help you optimise your decision making processes in terms of whether to discount the alert or not.
This brings me to my next point.
3.Ensure you can evidence
We’re seeing a big uplift in regulatory visits and across all jurisdictions. This looks set to continue. Being able to submit accurate reports and evidence and justify your decision making, demonstrating that you have made risk-based decisions, has never been more important. The regulator requires you to be able to evidence the effectiveness of the technology you’re using, and to be able to justify and explain your processes and your decisions.
An important aspect of this is ensuring that any AI elements are explainable. Not only does this make your system more user-friendly, but it also obviates the need for you to have a data scientist on the team.
4.Test and refine
In this fluid environment, the ability to react quickly and effectively to changing circumstances is vital. Regulations and sanctions lists change overnight, and compliance teams need to get ahead of all the possible ‘what if’ scenarios. That’s why an integrated no-code sandbox is an essential tool in your client screening armoury.
We at Napier were the first in the sector to introduce an integrated sandbox, so our belief that a sandbox is an essential is long standing.
Trying out new rule sets, trialling multiple screening configurations, being able to self-build and test, all in a no-code environment, means that compliance professionals using real data in a sandbox environment can test and adapt their rule sets in accordance with changing external factors. It’s both efficient in terms of time and cost, and effective in terms of flexibility, responsiveness and risk management.
5.End to end or point solution?
Taking an end-to-end approach to your AML compliance systems gives consistency and allows the team to manage workflows seamlessly. Using one or more suppliers is both cost effective and results in fewer gaps, allowing configurations, sandbox iterations, reporting, next generation matching and tailored dashboards to be integrated into one intuitive flow.
However, introducing a cutting-edge point CS solution, or overlaying a modern client screening solution over legacy technology can also be a good option, resulting in minimal outlay, disruption and time to deployment, while delivering a substantial reduction in false positives. Such an approach can deliver a massive improvement in compliance and cost. We have seen a reduction in false positives in a live environment of 97%. Overlaying a point solution over a legacy system can be an extremely cost-effective approach to the immediate issues.
While the challenges of today have never seemed more daunting, the technology available to compliance professionals delivers new levels of flexibility and response times to meet those challenges. If they are not doing so already, every organisation should be re-examining its approach to client screening to check that it really is fit for purpose.
Improve your compliance processes with an award-winning solution
Napier’s Client Screening has been developed to give compliance teams the most sophisticated, flexible and effective solution available today; all through one highly configurable, highly scalable platform. Get in touch or request a demo to see it in action.
Photo by Pawel Czerwinski on Unsplash