Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- In the 21st century, adverse media screening is among the most important tools used in BFSI sector compliance programs to determine whether individuals and entities are involved in any unlawful activities and to better understand their profiles and transaction behaviour.
- Adverse media screening plays a vital role in BFSI operations by supporting risk management and regulatory compliance programs. It supports financial investigation processes such as customer due diligence (CDD), enhanced due diligence (EDD), AML and fraud investigations.
- BFSI is an industry built on trust; protecting reputational damage is important for any financial institution. Adverse media screening supports BFSI sector by restricting its relationships with unlawful individuals and entities.
Introduction
The banking, financial services and insurance (BFSI) sector plays a key role in global economic stability by providing financial services. In the 21st century, where money is moving through individuals' and entities' accounts via online platforms with a single click, the fast-paced growth of online transactions underscores the need for a robust financial investigation mechanism across all low, medium, and large-scale financial institutions to combat money laundering, terrorist financing, and various fraudulent activities.
Regulatory compliance requirements and public scrutiny further increase exposure, as regulatory non-compliance can immediately lead to reputational damage for the institution and also result in regulatory penalties from law enforcement agencies. As a result, financial crime risk management is critical for all financial institutions worldwide.
Adverse media screening in financial crime investigations is the process of identifying negative news about an individual or entity. It helps identify predicate offences—such as fraud, terrorist financing, human trafficking, and drug trafficking—enabling financial institutions to take informed decisions and mitigate risks of regulatory non-compliance.
Adverse media screening and its role in the BFSI sector
Adverse media screening plays a vital role in BFSI operations by supporting risk management and regulatory compliance programs. It supports financial investigation processes such as customer due diligence (CDD), enhanced due diligence (EDD), anti-money laundering (AML) and fraud investigations.
Sources for adverse media screening include criminal records, news articles, social media, and credible, independently reliable sources that provide a comprehensive view of individuals' and entities' histories. This includes details on alias names, addresses where the individual has resided, property information, vehicles owned, criminal history, business connections, neighbours, colleagues, relatives, and social media presence.
Adverse media screening tools help unmask associations with activities such as money laundering, terrorist financing, human and drug trafficking, sanctions violations, and other unlawful activities that may not be identified through regular sanctions checks.
Implementing adverse media screening as part of the financial institution’s compliance program enables institutions to identify risks more meticulously to meet the regulatory requirements and make well-informed decisions during onboarding, and ongoing monitoring of customer relationships.
Below are some of the well-known adverse media applications:
- CLEAR
- Lexis Nexis
- World check
- Regulatory Data Corp, Inc
Advantages of adverse media screening tools and applications
The key advantage of adverse media screening tools is their ability to identify risks associated with individuals and entities at an early stage of the customer relationship. It also helps with ongoing monitoring of customers’ transactions and risk-profiling of the customers by providing critical information which helps with taking well-considered decisions. These searches help in a better understanding of transaction behaviour, the nature of business of the counterparties and the relationship to the originator/beneficiaries and/or transaction activity.
Adverse media tools and applications help strengthen regulatory compliance programs to meet the requirements of law enforcement agencies in accordance with the country's specific laws, thereby reducing the risk of regulatory fines, license cancellations, and legal proceedings. Most importantly, it protects financial institutions from reputational damage by restricting their relationships with unlawful individuals and entities. BFSI is an industry built on trust; protecting reputational damage brings a competitive advantage for any financial institution.
Challenges and best practices
The amount of information these applications provide requires robust training for users on how to use and secure the information, and on how to validate potential hits and discount the adverse information identified.
The critical aspect of utilising an adverse media application is verifying potential adverse information about customers. It is important to understand that the information identified may not always be valid. Therefore, it is important to examine the flagged information further and ensure it is not a false positive.
Financial institutions should exercise reasonable judgment and avoid sources that are not independently reliable or require additional verification, such as Wikipedia.
For effective use of adverse media screening tools and applications, financial institutions should adopt risk management systems, processes, and a quality framework. Continuous training and monitoring are the important factors for better utilisation.
Conclusion
Adverse media screening plays an important role in the risk framework of the BFSI sector. In this digital world, with the fast-paced growth of financial transactions, financial crime is increasing, and institutions are at risk of reputational damage and regulatory non-compliance. To combat this, adverse media screening plays a vital role in BFSI compliance operations by helping institutions make well-informed decisions so they can protect themselves from reputational damage, regulatory fines, and loss of trust. The support it provides to BFSI financial investigations helps them to combat money laundering, terrorist financing, human and drug trafficking, which not only strengthens the BFSI sector but also helps in developing a more secure and peaceful world.