Financial firms should seek out negative news about their potential customers as part of a thorough due diligence review
The process for screening negative customer stories to assess the financial crime risk they present should be effective and efficient, risk-based, and responsive to the legal and regulatory requirements of the jurisdiction in which an institution operates, a bank-industry anti-money laundering (AML) group in its latest policy report.
The document from the Wolfsberg Group of 13 major international banks comes as many financial institutions struggle to reach out to customers in Russia who have not yet been sanctioned but could be targeted by the US government and its allies due to of their ties to the Russian government.
In its article, presented as a series of Frequently Asked Questions (FAQs), the Wolfsberg Group states: “While there remain limitations and challenges regarding large-scale media searches, news filtering negatives can be a valuable mechanism that allows financial institutions to have a better understanding of who they are doing business with and the risks to which a financial institution is exposed. The Wolfsberg Group works to develop frameworks and guidance for financial institutions to manage the risk of financial crime.
Negative news or “adverse media” is the cornerstone of customer due diligence. It may seem simple in concept, but when AML professionals try to put it into practice, “it can bury you with mountains of irrelevant results that need to be studied,” said an expert familiar with the article. of Wolfberg, adding that it makes the design fitting. of the life process.
The document was not specifically designed to be part of a US Treasury Department and Financial Action Task Force (FATF) effort to set global standards for anti-money laundering. money to increase the effectiveness of anti-money laundering programs, the source explained. However, filtering out negative news can be an important element. “If not done correctly, it can be a massively inefficient process,” the source said.
Wolfsberg’s article states that “there is no single, universally accepted approach to screening negative information, which is why the Wolfsberg Group has developed these guidelines to help financial institutions establish their screening framework. negative information in support of financial crime risk management”.
Negative news screening allows financial institutions to apply a range of public information, data and analysis to help determine a customer’s risk profile. This can help the institution understand the financial crime and reputational risks posed by a business relationship so that those customers and relationships can be managed.
The value of screening negative news “corresponds to the availability of the news and the credibility of the media source in the public domain,” the document states, noting that certain types of customers such as high net worth individuals, politically exposed persons , large corporations and financial institutions are more likely to have a high public profile and, therefore, one would expect them to be subject to a higher degree of media scrutiny. “In these situations, the performance of broad negative news screening may be appropriate on a risk-sensitive basis,” the document says.
Conversely, an ordinary retail customer is likely to have a lower public profile and therefore much less media attention, the newspaper adds. “In this case, more targeted searches of structured news and media sources might be more appropriate to ensure efficient use of resources. It may also be suitable do not lead filtering negative news; a financial institution would not be expected to devote resources to filtering out negative news when the added value is negligible or disproportionate to its financial crime risks.
Financial institutions should consider rating monitored sources in filtering out negative news, in part to avoid “fake news” or “disinformation,” the document notes, adding that when an institution uses an outside party or vendor to provide a pipeline of media sources or content, “it is recommended that the financial institution understand the vendor’s reliability assessment and the controls it has in place to mitigate the risk that unreliable sources influence the selection process.
The document goes on to say that “international news agencies and national newspapers that report on a wide range of world and national events generally provide accurate and higher quality information” and that “the credibility of the content is generally higher when subject to editorial scrutiny”. .”
Ensure that the screening solution is appropriate
Financial institutions might want to consider a number of factors when evaluating a negative information filtering solution to ensure it is appropriate or “fit for purpose,” the document says. These include:
- Cover — robustness of database content and scope of media sources monitored (Financial institutions must have sufficient media coverage in the markets in which they operate or in which their customers are located.)
- Data — completeness, integrity and timeliness of negative information (Consideration should be given to the accuracy and completeness of filtering out negative information, as well as levels of alert duplication if the same adverse data is found in multiple data sources.)
- Corresponding to — name matching efficiency and false positive/hit rate
- Archive — accessibility of press articles that are archived or no longer available in open sources
- Translation — ability to provide news or events translated into the language of operations of financial institutions
- Scalability — ability to set search parameters, search depth and result filtering
- Reports — availability of relevant dashboards and performance measures
- Traceability — recording and ability to review all internal filtering events, configurations, and other applied logic to generate a match
- Data sharing — consideration of local data sharing requirements when using external or shared solutions, especially when external tools and teams are used to make a selection or decision on behalf of financial institutions
Implementing negative news screening is part of the overall set of financial crime compliance controls, and the financial institution’s risk appetite is central to the approach taken, the document says. .
“Given the potential scale of negative news filtering, periodic testing of effectiveness and efficiency will be essential to fine-tune the approach taken by financial institutions to ensure that negative news filtering is optimized and adds value. the value.”