All companies adhere to the laws and regulations in their respective industries. However, companies operating in the finance sphere are significantly regulated and must pay additional attention to stay compliant and not break any laws.
The number of individual frauds is significant, but financial institutions are large targets that can be at risk from groups of malicious individuals. With the latest technology, such as artificial intelligence and machine learning, new methods of defending against fraud emerge.
However, sanctions screening and other advanced anti-money-laundering methods ensure maximum security for banks and financial institutions. This article will explain the importance of sanctions screening software and how to implement it effectively.
Sanctions screening explained
With globalization rising, companies have clients and customers from all over the world. While this can increase their profits, it also requires them to perform additional work and adhere to additional regulations.
For example, a Western European criminal is banned from creating and using bank accounts. To avoid this, they try to use a banking application based in another region where regulations are less strict. Reputable financial institutions must prevent such activities from occurring to maintain their reputation and avoid conducting business with criminals.
Sanctions screening is an activity that analyzes an individual who is looking to use your financial institution's platform as part of AML and Counter-Terrorism Financing (CTF) measures.
In short, this is the answer to what is sanctions screening? However, it’s important to find out whether a certain individual has malicious intentions before they make any moves. This is why it’s important to leverage sanctions screening software that automatically conducts checks for you.
The challenge with sanctions screening is that blacklists and sanctions lists are constantly updated and usually from all around the world. Depending on the nature of your financial institutions, you must ensure that local and international entities are legitimate and safe to work with.
How sanctions screening works
In essence, sanctions screening involves comparing the documents and data of an entity or an individual who wants to collaborate with your institution with various lists. If there is no overlapping, the entity or individual is free to continue collaborating with your company.
The first step of sanctions screening is identity identification, which is an essential part of KYC requirements. Once you’ve verified the individual's identity, you can compare it with relevant lists such as politically exposed persons (PEP), sanctions, crime lists, adverse media, watchlists, and other lists specific to your business.
These lists include everyone from tiny fraudsters to oligarchs who use financial institutions to launder money. If you suspect someone to be problematic, you should manually verify their identity to prevent false positives.
If you find a match, you should restrict their transactions and block their account. Then, you should contact the relevant personnel and institutions to handle their case adequately.
Sanction screening shouldn’t be done each time someone makes an account, but it should also be conducted in a situation where someone makes an increasing number of suspicious transactions. This can be streamlined by using real-time protection and transaction monitoring software.
Politically exposed personas aren’t the only ones you should pay attention to. Their friends, family, and acquaintances can just as easily be part of a fraudulent operation, which is why it’s important to analyze transactions continually and expand the list of problematic individuals.
Important parts of the sanctions screening process
You can rely on an AML compliance officer to ensure your company adheres to relevant regulations. An AML compliance officer also trains your staff, ensures that you have compliant processes, and reports relevant incidents to the authorities.
You can use sanctions screening software to automate this process, either along with an AML compliance officer or instead of them. Furthermore, such software helps with general risk management, transaction monitoring, auditing, and report generation.
If you’re an entrepreneur and not a law and compliance expert, chances are you aren’t be up-to-date with the latest regulations. You can hire the relevant personnel for these tasks or find adequately updated software.
Besides AML processes, you should also consider data regulations and how your company is gathering and storing data. This can be a potential risk, as it can lead to fines or blows to your reputation.
Your employees need to be trained in risk awareness and handling problematic situations. Furthermore, you should know which risks your company can take and which you must avoid at all costs.
Key benefits of SSS
There are many more benefits to SSS than the ones listed here, but as a company in the finance industry, these can be crucial. We can go into more or less detail about these benefits but one is obvious - SSS will save you money and even prevent bankruptcy.
Delve into explaining some of the key benefits and decide whether to implement SSS or stick with manual methods of sanctions screening.
Improved compliance process
SSS improves compliance by automatizing tedious tasks and staying current with the latest regulations. Furthermore, SSS ensures that AML protocols are implemented and that any wrongdoers are stopped immediately.
An advantage of SSS is that you can generate detailed audits and reports on the state of your compliance adherence. Compared to an AML officer, software specialized in sanctions screening is automatized.
Such software is often developed with advanced principles by developers knowledgeable in programming and compliance protocols.
Better risk mitigation
A great advantage of SSS is that you can easily mitigate risks. SSS allows you to score each risk and handle them accordingly. This is quite helpful in sanctions screening as such software automatically ranks risk levels.
Effective risk management directly lowers the chances of your company suffering from legal penalties, fines, or sanctions arising from non-compliance and problematic personas.
Better user management
Through monitoring user activity, SSS can help you take legal action once a problematic incident unfolds. This way, police or legal bodies involved can understand how and when the incident happened and where the individual was located through an IP address.
Furthermore, some SSS can help you manage the roles and privileges that your users and/or employees have.
Streamlined transaction screening
Manual screening of each transaction is basically impossible at a certain business size. Financial institutions can process thousands to millions of transactions a day, and handling them isn’t possible without some level of automatization.
Manually screening the most risky transactions is effective, but you may miss out on numerous other transactions that can be just as problematic. SSS streamlines this process and relieves the stress on AML officers and other compliance personnel.
More scalable than other options
As your business grows, sanctions screening software solutions can adequately adapt and expand depending on your company’s workload. This is because SSS is often easily integrated through API.
Of course, companies that develop SSS are also there to help you implement their software and offer you continual support. SSS scales proportionately to business size and needs, which isn’t as easily done when those tasks are performed by actual personnel.
Another context in which SSS is more scalable is when penetrating new markets. As mentioned, an important challenge is checking sanctions lists from other countries, especially those with questionable regimes.
SSS quickly adapts and extends based on the latest regulations of the recently penetrated geographical region or market.
Sanctions screening software is essential for financial institutions
There isn’t a method to prevent you from 100% of the attacks you can suffer. However, each new emerging technology can significantly cover a certain vulnerability of your business.
Before you move on to purchasing fraud prevention software and hiring new experts, do thorough research to understand your company’s vulnerabilities and then tackle them properly. Although AML software can cost you, this is nothing compared to the fines you can suffer if your business gets sued for being involved in money laundering or fraud.
Even if a financial institution gets exploited by a sanctioned individual due to neglect, this is still problematic, and it will suffer the proper consequences.