In the past decade, readers have witnessed a surge in the news related to crimes, violence, and fraud. Though gaining the attention of the readers is the objective of the newspapers, this leads to compliance challenges. Adverse media check in Anti Money Laundering (AML) compliance is the process, in which financial institutions use a software application to search for any sort of bad information or negative news against a person or a business who wish to open his or her bank account.
What is Adverse Media ?
Adverse Media is described as any kind of unfavorable information, available in the public domain. It contains negative information from traditional news outlets such as Forbes, Fortune, NYT, or personal blogs and those from unstructured sources. The scope of negative media goes beyond the English language.
Adverse media screening scans the name of the person or the organization against the negative news from the data sources available on the internet and third-party data sources. These people are known as Politically Exposed Persons
(PEP) and their names feature in various PEP and Sanctions lists across the world. This screening is a very essential part of the KYC and EDD process for banks and other financial institutions.
In India, Riskpro
is one of the providers of the information on the Politically Exposed Persons. This is probably the only dedicated database of PEPs with the unique identifiers. The politicians which are not featured in any media or news are also classified in this database.
Politically Exposed Persons are more likely to be involved in criminal activities. An in-depth risk assessment is performed before financial institutions think of associating with them.
The main intention to carry out an in-depth adverse media check is to find out if the customer has any connection with any sort of crime, money laundering, financial crime and fraud, terrorist funding activities, drug trafficking, human trafficking, etc.
When do you perform adverse media checks?
Most financial institutions perform the adverse media check at the time of onboarding of the clients. However, some customers who are classified as high-risk customers are continuously monitored and adverse media checks are performed periodically. When the accounts start showing the indicators of getting bad then institutions go all the way to understand the reputation of the borrower.
Lists for Adverse Media Check
Adverse Media Lists are essential to reduce the false positives while doing the customer due diligence. Negative news screening sources include databases such as Sanctions, watch lists, PEP Lists, Interpol’s most wanted person list, etc.
Additionally, during the process of adverse media screening information from traditional news sources such as newspapers, magazines, radio, TV, etc. is considered trustworthy. The information available on sources such as Social Media, articles, blogs, websites that publish terrorist financing, corruption, and fraud-related cases, government lists showing criminal records, etc are considered important in AML regulations.
Now the issue is that a huge amount of data is available online and it increases with each passing day. It becomes difficult for the compliance team in the financial institution to find the relevant content from all these cluttered sources. They have to check whether the individual named in these lists is actually the individual they are looking for. Sometimes, it becomes difficult for them to categorize the customers into low, medium, and high risk. This process is manual, takes a lot of time and the financial institution has to bear a lot of costs.
Importance of Adverse Media Check
In order to reduce the complexity of the risk assessment process, financial institutions focus on accurate screening of watch lists. Their systems must have an updated PEP and Sanctions list, with comprehensive data and robust analytics. Adverse Media databases are useful if they are updated quickly. It helps FIs to improve operational efficiencies and reduce the generation of a large number of risk alerts. This can be achieved by capturing data in a more organized way and using proper matching algorithms case by case. Financial Institutions can also opt for Artificial Intelligence and Machine Learning technologies.
Adverse Media Check is an important aspect of the Risk-Based Money Laundering directives issued by the Financial Action Task Force (FATF). Certification courses
in Risk Based approach to tackle money laundering deal with Adverse media screening-related challenges. Financial institutions take the suspicious activities of the adverse media profile seriously. Adverse media profiles can be classified as high risk. Banks are not willing to continue their relationship with high-risk customers. It is not easy to write the algorithm for identification of the adverse news from the whole wealth of public domain information. Hence, regtech companies are gaining popularity in this space.