If you’re a financial institution subject to regulatory scrutiny Adverse Media Screening, also known as negative news screening, needs to be an integral part of your KYC (Know Your Customer) process. In the US, KYC processes fall broadly within two areas; the first, part of the financial institution’s BSA (Bank Secrecy Act) and Patriot Act AML (Anti-Money Laundering) regime and the second as part of a Know Your Vendor/Supplier due diligence to comply with FCPA (Foreign Corrupt Practices Act) compliance.
Adverse Media Screening is searching for negative news about a person or entity (business, not-for-profit, etc.) As an advisor who has assisted numerous financial institutions with their Onboarding and KYC processes, Adverse Media Screening challenges can be broadly classified as follows:
- Identifying who should be screened and when
- Identity Resolution: False positives abound when adjudicating adverse media alerts
- Selection and deployment of technology and automation to parse through vast amounts of data
- The review process itself
- Training and deployment of negative news analysts
- Final disposition around adjudication of negative news alerts and where they fit into the risk tolerance index of the FI or corporation
What we have also seen is that there is no industry standard around the Adverse Media Screening process. Each financial institution or corporation has its own strategy around this area.
Here at eClerx Markets, we can offer some best practice strategies and tips that you will want to incorporate into your processes. The first coincides with our three-part compliance ‘mantra’ here at eClerx.
- Tone at the top
- Reasonable and Robust
- Auditable and Traceable
Let’s take a look at these three concepts and apply them to Adverse Media Screening.
Tone at the Top
While this is a broad compliance concept, it is one of the areas that regulators focus. Their concern; does compliance and its involved governance, processes and procedures have a seat at the executive management level? In the case of Adverse Media Screening do we have the appropriate executive oversight? Do we have relevant policies and governance? Moreover, most importantly, do we have the budget and talent resources required to do this accurately and efficiently?
Reasonable and Robust
While financial institutions and businesses are neither the FBI or CIA, is the adverse media intelligence gathering and screening process effective? Is it capturing the essential data? Does the data analysis support the risk tolerance program of the institution?
For this, we have a tried and true suggested approach that we have used in both the AML and FCPA Compliance areas. We believe that a reasonable and robust method to negative news screening includes the use of both a recognized compliance data vendor as well as an internal OSINT (Open Source Intelligence Search). Most interestingly, it has been our work with monitors and law firms on FCPA-related projects that drove this finding home. While there are many data vendors in the market, there are about four significant data compliance vendors that focus on AML and FCPA data. In addition to adverse media news, these vendors also supply sanctions list screening as well as PEP’s (Politically Exposed Persons) lists.
Regarding OSINT searches, the go-to standard is Google. However, there are a plethora of open source websites that should be employed as well as defined search strings. For example, sites such as LinkedIn can be used to corroborate or rule out identities. Free sites such as piple.com and knowyourcountry.com are just a few of the tools we use in adjudicating our client’s adverse media alerts.
Auditable and Traceable
Again, due to our involvement with multiple clients and participation in the ‘Big Three’ financial crime associations (ACFE, ACAMS, and ACFCS), providing us direct insights on what regulators focus on within their audits. The overriding theme for the past several years is “we’re not looking for perfection.” However, what they are looking for is as follows:
Clear and concise documentation on policies, procedure, and operations
Consistency in process
A robust Quality Assurance Program
Focus on risk profile as well as policies outlining when risk profiles need to be re-evaluated. Negative news is one of the triggers for that re-evaluation
Best efforts and training
We plan to follow up this article with a description of our new Adverse Media Screening Tool as well as our strategy for including proactive negative news screening. We welcome your comments and questions. You can reach me for questions and commentary at glenn.dinetz.c@eclerx.com
