By Barley Laing, the UK Managing Director at Melissa
Worryingly, the FCA has recently found many of those in financial services wanting with their sanctions screening efforts.
After a survey of sanctions controls at 90 firms the FCA uncovered deficiencies across staffing, technology and reporting networks, leading to a lack of adequate resources to ensure effective sanctions screening. Additionally, their study found that customer due diligence (CDD) and know your customer (KYC) procedures were found to be wanting.
All this is concerning, particularly with the plethora of sanctions enacted since the start of the war in Ukraine, alongside more recent conflicts, such as the one in Sudan.
A failure to adhere to current regulations on sanctions screening by those in financial services will see fraudsters and money launderers slipping through the net, leading to potentially big fines and long lasting damage to their reputation.
Why are there these issues with sanctions controls? Too many in financial services view sanctions screening as a tick box exercise, and are not investing in the resources they need to not only effectively meet regulatory requirements, but also those of their wider organisation.
Up-to-date sanctions lists
To ensure you are up to speed with the latest sanctions data, and also regulations, the most important step is to obtain an up-to-date sanctions list. It may sound obvious, but it’s surprising how many don’t have access to one. The list should be accessed as part of an automated tool that collects and synthesises sanctions data from a wide range of trusted sources worldwide, such as governments, regulators, and credit agencies. It also needs to continually scan for updates on sanctions data and deliver them in real-time.
This automated approach is a much more efficient and accurate way to implement sanctions screening. The other option, manual checks using search engines, could leave your organisation exposed to sanctions breaches and the associated cost in fines and to your reputation, quite apart for the large cost of employing staff to carry out such checks.
PEPs and RCAs checks
It’s important to realise that having an up-to-date list of those who have been sanctioned is not enough. Those in financial services need to screen against politically exposed persons (PEPs) and relatives and close associates (RCAs) of PEPs from around the world, because there’s a tendency for these groups to be involved in or drawn into crime. In the UK, financial organisations are legally obliged to undertake enhanced checks of both domestic and foreign PEPs.
Adverse media checks
Adverse media screening is essential for both customer due diligence (CDD) and enhanced due diligence (EDD), to ensure know your customer (KYC) and anti-money laundering (AML) regulations are met. This makes it vital to source adverse media screening technology that enables you to keep abreast of the latest news and alerts, in real-time, on any arrests or court cases, for example, against your customers who may be PEPs and RCAs, and others who could have a potential negative regulatory, financial, or reputational consequences to your organisation.
Obtain adverse media screening services that can scan the credible global news media for maximum reach. This enables compliance teams to remain up to date on any new information regarding the status of those using their products and services, with customers with negative news against them ranked as high risk, and requiring further due diligence which may result in terminating the relationship.
Technology primed
Identifying those who have been sanctioned is only half the battle. The next stage requires having processes in place to immediately act on this information. To this end, ensure systems and controls related to your organisation’s onboarding and payment screening platforms are able to act on those who have been sanctioned. And once these individuals have been detected in your database, make sure you have the systems in place to block transactions and quickly freeze funds.
Train compliance teams
Undertake suitable training for compliance staff who are on the front line when it comes to acting on the sanctions data. As well as having a clear understanding of the latest sanctions measures, they also need to know how to handle those individuals that are impacted by the sanctions, so everything is handled appropriately.
Integrated eIDV service
It’s important to understand that there are electronic ID verification (eIDV) services available that not only have access to comprehensive sanctions data, including those on PEPs and RCAs, but are able to cross-check user-provided details against reputable data streams to ensure individuals are who they say they are in real-time. Using such tools which have everything ID check related integrated in one place not only have cost benefits in terms of scale, but ensures those in financial services are well placed prevent fraud and meet their regulatory requirements as set out by the likes of the FCA.
Now the FCA has identified a deficiency in sanctions screening this is no doubt an area they will be paying close attention to in the future. Therefore, it’s time for financial organisations to step up and ensure that their sanctions screening is appropriate for their needs and those of the regulators, and they also have effective wider KYC procedures in place over the long term. Those that don’t risk experiencing an increase in fraudulent activity, falling foul of the FCA and tarnishing their reputation.
