Adverse media screening is an crucial part of any customer due diligence process as missing an important piece of information could have significant consequences, particularly from a regulatory compliance perspective. How can adverse media screening help you address the regulatory risks and protect your reputation?
- Adverse media screening forms a crucial part of any customer due diligence program. However, there is no comprehensive definition and guidance on how to use it operationally.
- To gain a more accurate understanding of risks associated with entities, it is necessary to conduct adverse media screening and cast the net widely to seek information that appears in other areas not always deﬁned as news media.
- Gain more insight into the complexities of adverse media screening by joining our panel of experts for our webinar on November 18.
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Adverse media screening is a critical element of any customer due diligence program, but it is perhaps one of the least well-developed areas from a regulatory perspective.
While various regulators, industry bodies, and the likes of the Financial Action Task Force recommend that financial institutions conduct checks of adverse media as part of their screening processes, it is not comprehensively defined, nor is there detailed guidance on how to use adverse media information operationally.
What is adverse media?
Adverse media, from a compliance perspective, is generally considered to include allegations found in reputable news and other publications that link a person or entity to involvement in money-laundering, corruption, sanctions exposure, terrorism and threat ﬁnancing, or other unlawful activity.
The exact requirements of adverse media screening can vary between countries and ﬁrms based on national legislation, industry, policies and other factors, but in general the description above is the minimum scope. Some compliance programs go further and consider various reputational factors, or wider issues like trafficking, and Environmental, Social and Governance (ESG) matters.
For anti-money laundering (AML), combating the financing of terrorism (CFT) and sanctions compliance programs, it is critical to distinguish between information that is ‘negative’ or ‘adverse’ in a general sense (“John is a bad politician”) or a moralistic sense (“John cheated on his life partner”), and information that may indicate customer risk (“John has been accused of embezzlement”).
The critical issue to consider is whether the conduct being alleged, if true, could demonstrably increase the risk that the ﬁrm will become inadvertently involved in financial crime, such as money laundering, the funding or engagement in terror-related activity or other prohibited activities.
For this to be the case, there must be a plausible causal link between the alleged conduct in the adverse media and the potential customer risk. That is why “John cheated”, while ‘adverse’, would not typically be considered relevant.
Media beyond the ‘news media’
In the industry, a very common, but inappropriately limiting, view emphasizes the ‘news’ part of ‘adverse media’, as in the ‘news media’ (e.g. newspapers, periodicals, news magazines and the like). With this view, ‘adverse media’ is customer risk-relevant information that you find while reading a newspaper or similar publication.
There is a very simple reason why reliance solely on ‘news’ can be limiting: The news media does not report all customer risk-relevant information. As a general rule, the mass media outlets focus on stories of wide and sustained public interest, and complex financial crime cases.
Relevant risk information can also be found within press releases and notices published by law enforcement agencies, tax authorities, and other government agencies, which is not often considered as news media, so it is important to cast the net widely.
Screening as adverse media due diligence
How should an effective adverse media program be designed?
The ideal scenario would be to have an army of highly trained forensic experts who look, in extreme detail, at every available reliable source online for relevant information about every client. Of course, in reality, compliance budgets are limited, so the unremitting challenge is: How do you conduct required due diligence cost effectively and at scale?
A large financial institution may have millions or tens of millions of customers, so how does one feasibly conduct adverse media screening? Smaller firms may have fewer clients, but they have correspondingly fewer resources, so the challenge also persists there.
The answer is to begin with screening.
When done properly, screening is due diligence, and a high-quality risk intelligence database will contain extensive pre- and post-conviction adverse media information.
The benefit of large-scale screening — combining fuzzy name-matching technology to allow successful remediation using secondary identifiers (date of birth, gender, place of birth, etc.) — is much more efficient than any manual process, and that while remediation is still necessary, this can often be done cost effectively by tier 1 analysts.
The next step in media screening
Organizations must keep abreast of financial crime media coverage relating to their clients’ activities. Missing an important piece of media information about a specific individual or entity could have significant consequences, particularly from a regulatory compliance perspective.
Watch — World-Check One: Media Check Feature
In the digital age, there is no shortage of available data, but the sheer volume of information that should be searched and analyzed can overwhelm even the most thorough efforts to separate relevant news from noise.
A media screening tool that uses AI capabilities to provide relevant content through the use of natural language processing and intelligent tagging, with customizable settings to tailor your searches, can solve the challenges encountered when dealing with large amounts of media content from multiple sources.
To gain more insight into the complexities of adverse media screening listen to our panel of risk specialists and partners discussing the importance of adverse media screening as part of the onboarding and ongoing due diligence process now.