Adverse media screening is fast becoming a crucial element of an organisation’s customer due diligence (CDD) programme.
Also known as negative new screening or media monitoring, adverse media screening searches for negative news and reputational risks on an individual or entity as part of an organisation’s onboarding, know your customer (KYC), and anti-money laundering (AML) process.
In short, adverse media screening is the process by which a customer, or prospective customer, is compared or screened against negative news and data sources.
Its importance cannot be underestimated as it can help provide an organisation with an early warning monitoring system for potential risk.
Why is adverse media screening important?
Adverse media screening is important as there are certain types of events that fall outside of the inclusion criteria defined by data providers who supply sanctions, politically exposed persons (PEPs) and watch-list data.
By utilising additional open-source web data for adverse media, you will have an even more comprehensive view of risk, above and beyond traditional list-based screening sources that focus on either financial motivated crimes or PEPs.
As a result, if you aren’t screening against live adverse media, you could be missing out on a litany of reputational risk issues that are directly related to an individual or entity.
What constitutes adverse media
Adverse media screening can reveal the involvement of individuals and entities with a variety of wrongdoings. Bribery, corruption, financial crime, fraud, terrorism, organised crime, modern slavery, and cybercrime are all examples of offences that might need to be considered when monitoring a company or individual.
Having links to a potential client, distributor, intermediary, or supplier who are involved in (or alleged to be involved in) any of the above, can pose a serious threat. It’s not just that it can lead to legal and regulatory proceedings, it can also cause irreparable damage to your organisation’s reputation.
What the world’s regulatory bodies say
Adverse media screening isn’t just a case of protecting your organisation from reputational damage, regulatory bodies and institutions across the world have emphasised the importance of mitigating risks through adverse media screening.
And while global territories enforce different adverse media AML regulations and recommendations, they all emphasise the need to construct the most accurate risk profiles of your clients. Below is a brief summary of the stipulations set out by just three of the world’s most important regulatory bodies.
(6AMLD) The EU’s 6th Anti Money Laundering Directive recommends companies perform enhanced due diligence processes for high-risk customers, which includes carrying out open source or adverse media/negative news searches. It also encourages automated adverse media screening to achieve this.
The Financial Action Task Force (FATF) guidelines recommend that adverse media searches are performed as part of an enhanced due diligence process. Where a customer, prospect, or supplier has been negatively mentioned in the news, this could indicate a higher risk category.
The UK’s Financial Conduct Authority (FCA), reflects the guidance of the FATF, stipulating that adverse media screening should be implemented when onboarding customers and on an ongoing basis.
Adverse media screening should be implemented when onboarding customers and during “periodic reviews” of customer relationships.
~ UK Financial Conduct Authority
A brief guide on how to conduct effective adverse media screening
Manual screening has limited effectiveness and is extremely time consuming, particularly if you have a large number of customers or are dealing with multiple business partners.
Which is why it is crucial that you leverage the latest automated advere media screening technology. Not only does automation speed up the entire process and provide more accurate results, but it can also deliver far fewer false positives and allow you to scale your processes.
You also need to be able to check the aliases of any individuals to ensure that nobody slips through the cracks of your search. The ability to categorise searches is another important capability as not every positive result carries the same importance in relation to the subject’s risk profile. Whether categorisation is defined by legislation or your organisation’s own policies, it allows for far easier interpretation of results and the ensuing segmentation of risk profiling.
The credibility and coverage of the news source is another important consideration. You should be able to draw upon a global source that covers both official (government and institutional) and unofficial (media outlets) sources.
Finally, any monitoring solution should track news flows on a daily basis and allow you to review any results and update risk profiles at any given time.
When encountering an adverse media match, there are a number of actions that can be taken, depending on your organisation’s risk and compliance policy. At the very minimum, it should result in a higher rating of the subject’s risk profile, resulting in the need for enhanced due diligence or even the immediate termination of the business relationship.
In instances where the activity is of sufficient note, this should result in the filing of a suspicious activity report (SAR) in order to alert the appropriate authorities.
While there are clear regulatory requirements governing the ongoing screening of all business relationships, adverse media screening is an area that is all too often ignored.
There are many reasons for this, ranging from complacency about its potential impact, to a lack of resources in already overburdened compliancy departments.
But increasingly, regulatory bodies are demanding that organisations search for potential issues rather than waiting for an individual or entity to be dragged through the courts before taking action.
As a result, every organisation with a compliance function, needs to consider investing in an ongoing automated screening solution based upon high quality and timely data and make it an integral component of its overall risk prevention framework.