Tom Berkovitch, Director of Product Management & Strategy, Financial Crime Portfolio | May 25, 2022
Sanctions screening has long been a multi-dimensional puzzle that’s constantly evolving and increasing in complexity.Moreover, due to the severe financial and reputational ramifications of any potential violations and heightened regulatory expectations, getting sanctions screening and compliance right is a major obligation for banks and financial institutions (FIs). As a result, there is a multitude of challenges associated with the implementation of a successful sanctions compliance program.
Sanctions have often been part of the essential foreign diplomacy – as a geopolitical tool or a deterrence policy. Therefore, changes in sanctions are mostly imminent in response to any foreign policy changes by major economies. Many times, these sanctions change almost overnight. As a result, organizations must be nimble and agile to adapt to these changes. Banks and FIs must essentially comply with multiple global data sources of watchlists, sanction lists, designated lists for Specially Designated Nationals (SDNs) or the Politically Exposed Persons (PEPs), adverse media, and internal lists, or “accept lists.” Additionally, they must stay abreast of changes to any of these sources. It is a humongous task, making it difficult for firms to keep pace and remain compliant.
Operational challenges can also mar the effectiveness of a sanctions program. For example, there has been an exponential increase in remote financial activity and online transactions. Ensuring robust and foolproof screening of customers, their associates, adjacent actors, transactions, and their beneficial owners during the entire customer lifecycle is an arduous task that is further complicated by the ever-evolving sanctions landscape. Another hurdle is the legacy systems that induce data inconsistencies, pose matching and screening irregularities, cause inflated false positives, and result in tedious and ineffective investigations. So, while sanctions are undoubtedly a key focus area for banks and FIs, the million dollar question is: where to begin?
Getting sanctions screening right is a key priority for banks and FIs for a foolproof AML/CFT compliance program. However, they often face roadblocks when achieving effective and robust sanctions screening and controls. Let us look at some of these challenges:
The high-risk pitfalls of inadequate sanctions screening and controls can be overcome if the challenges above are managed. Let us look at a step-by-step approach to getting sanctions screening right.
Though sanctions screening is such a critical component for the success of the AML/CFT compliance programs of banks and FIs, it is still challenging to navigate the complexities of the sanctions landscape. As a result, banks require a need-gap analysis and select a scalable screening solution to offer them the desired technological edge and ensure regulatory compliance.
The best-fit solution is the one that helps them tick the following checkboxes—precise matching capabilities, mitigate redundancies, achieve operational efficiencies, screening precision across the entire lifecycle, optimize investigation time and quality, lower costs, and provide seamless customer experience—all while achieving regulatory compliance. Of course, getting it right with these checkboxes may seem utopian. Still, the right innovation and technology partner can help banks and FIs achieve robust sanctions screening while optimizing the cost of compliance.