Also known as Adverse Media, Negative News has become an important part of the compliance wheelhouse when screening and onboarding new customers and suppliers.
As a provider of Adverse Media Screening technology, we understand how it can enhance defences as part of a risk-based approach to anti-money laundering (AML) and counter-terrorist financing (CFT).
The Wolfsberg Group recently published a list of FAQs on Negative News Screening (NNS) aimed at assisting Financial Institutions (FIs) in their fight against financial crime and to help mitigate reputational risk.
Out of the 28 questions listed, we have focussed on 5 key areas in order to look at these in more detail.
What are the sources a FI might use for NNS?
The scale and scope of sources available for negative news screening is vast. However, what counts as adverse media depends on your point of view and the technology that’s available to you. Those two elements will either limit or expand the definition of what you believe “adverse media” to encompass.
The Wolfsberg Group’s document states, “the credibility of the media source will be a key factor in determining whether it should be used in NNS. For example, factors such as the completeness, accuracy and coverage of the source should be considered.”
At RiskScreen we map out the adverse media spectrum as follows:
While structured datasets can help with the credibility of news, the ability to search the whole internet, including unstructured sources such as social media, will ultimately provide compliance teams with a more comprehensive set of results.
Obviously, an overload of results can also mean an overload of false positives. That’s why an intelligent technology platform is required to help filter those results and apply a risk-based approach according to a company’s risk appetite.
What is meant by the term Reputational Risk in the context of Financial Crime NNS?
According to The Wolfsberg Group: “Reputational Risk in the context of Financial Crime NNS relates to the risk of negative public perception with respect to the FI’s association with a customer or business relationship which may or may not be relevant from a Financial Crime perspective.”
It is acknowledged that the criteria for reputational risk is much harder to define than the traditional risks associated with predicate financial crimes.
Reputational risk issues can vary based on location, culture, macroeconomic, public interest, and the local media involved, particularly when concerning alleged issues.
Based on the example supplied by The Wolfsberg Group, if an FI were to encounter allegations relating to UBOs of a corporate entity when screening or onboarding, they may be able to satisfy that the allegations are false after conducting further enhanced due diligence.
Also, it would then be able to prove the steps that it had taken in approving the new customer. However, the reputational risk element would not be able to be mitigated in the same manner, and therefore it is advised to treat reputational risks separately from traditional financial crime risks.
Just to underline the seriousness of reputational risk, the potential damages to a financial institution can easily outweigh that of a penalty or fine from a regulator. Reputational damage can mean losing customer and stakeholder trust, with potentially long-lasting negative perceptions.
Can an Internet Search Engine be used for NNS?
Search engines such as Google index literally billions of web pages and are the go-to source for just about every type of online search. But there’s an important distinction to be made when they are used in a compliance function. The Wolfsberg Group FAQs summarises this neatly:
“While Internet search engines may be used for certain aspects of Negative News Screening, it should be acknowledged that they have not been designed to assess Financial Crime Risk and may inadvertently de-prioritise information most relevant for this purpose. A reasonable effort should be made to understand the potential limitations associated with Internet-based screening prior to use.”
More seasoned internet users will recall that when search engines first became popular, advanced search settings were easily found alongside the main search function. As search engines evolved, the user experience became simplified and as a result most of these tools are now abstracted away from view. The default behaviour of search engine like Google, is that it will find results that it deems are most relevant to you in your location at that exact time (plus many other factors in their algorithm), which doesn’t always work as well in a research or compliance capacity.
That said, search engines such as Google still accept Boolean search terms (operators such as AND, NOT, and OR). It’s both important and relevant because of the difference between searches based on either exact or partial matching. For example, individual names, organisation names, or two or multiple parts phrases such as ‘tax evasion’ or ‘money laundering’.
Another problem with using search engines in their native format, is the lack of audit trail or the ability to report on your findings. Screening systems that use the APIs from Google or Bing have the benefit of accessing the vast array of open-source data, while providing additional functionality that enables you to save the results and create reports.
What is meant by a Rules-Based and Risk-Based approach to NNS Alert Management?
To support negative news screening, it is common for FIs to use Rules-Based and/or Risk-Based approaches to receiving alerts. The Rules-Based approach covers a specific set of steps, for example, NNS alerts are closed when the date of birth in the FI’s customer record differs to the one published in the media by +/- 1 year.
A Risk-Based approach allows for more criteria to be used. Which for an FI can mean that it knows that the subject of negative news item is deceased, and the alert generation relates to live customer transactions.
As an advocate of the Risk-Based approach, RiskScreen has ‘baked in’ this methodology into nearly all its products, including customer screening. By configuring client Risk-Based metadata filtering options, including date of birth and country, it can dramatically reduce false positives.
Can technology assist an FI in undertaking NNS?
As with most compliance processes, technology can play a huge role in reducing the manual burden, thereby improving efficiencies, and the level of scrutiny required to mitigate risk.
In an NNS context, these can include:
- Managing alert volumes at scale, to ensure that investigations resources are focused on relevant alerts, i.e., a ‘positive’ (or ‘true’) match/events for risk assessment
- The ability to search multiple databases simultaneously
- The ability to narrow search results by date and country, tailor searches by frequency, use specific search term groups (included or excluded), and individual customer or customer types
- Features such as an ‘exclude URL function’ which removes websites to reduce false positives
- Audit history or reporting functions which can be used to substantiate findings
- The ability to store adverse media results (including copies of web pages) alongside hits from other structured database findings, so that all records are held in a single location
- The ability to schedule repeated screenings at set frequencies
For more information about how RiskScreen helps regulated and unregulated businesses with negative news screening and monitoring, both at scale and on an ad hoc basis, please read more about our solutions here.