Adverse media or negative news, whatever you choose to call it internally, is difficult to screen for successfully without a horde of analysts at your disposal. And it’s even harder to implement a risk-based approach to all this news.
Unfortunately, implementing a risk-based approach is not an issue up for discussion. It’s a necessity for any country or financial institution intending to meet FATF standards. A risk-based approach is considered to be most effective to identify and target illegitimate funds while following the 40 Recommendations.
Monitoring adverse media is not the same as discovering sanctioned entities. Adverse media doesn’t have the same binary status of risk or no-risk, so any adverse media alert that comes up demands a greater investigation by compliance officers.
An element of clarity has been provided through predicate offenses. However, FATF only provides broad strokes around what they should involve. It’s up to individual countries to define the specifics alongside domestic laws. And that’s optional. There is nothing stopping countries from leaving it open to businesses to decide for themselves how to handle predicate offenses.
While that means some regions have clear approaches to adverse media that can be incorporated into the compliance strategy of financial institutions (FIs), many others do not.
Without an express declaration of predicate offenses in place, it can mean FIs have no obvious strategy. Even worse, it could mean that they’re left to check any media even tangentially related to predicate offenses for fear of regulatory penalties.
Predicate Offenses in Adverse Media
The issue with the deeper checks necessary for adverse media is twofold — volume and velocity. Countless news stories are uploaded and printed daily. Add to that the thousands of legitimate and respected blogs online and the prospect of scrawling through all that information to find a story that may not even exist becomes more daunting than expected.
Luckily, adverse media tools exist to facilitate the situation. However, not all adverse media tools are made equal. AIM Insight permits the categorization of terms that concern FIs means that they can finetune the predicate offenses to find those which are considered, internally, as detrimental to business. And deliver the information to compliance officers through a combined entity profile that compiles all the adverse media on an individual in one place.
While this doesn’t fix the issue of unclear predicate offenses, the bundling of adverse media does solve significantly for the volume and velocity of news. And with that news located in one place, compliance officers are able to decide whether or not it’s worth pursuing.
Predicate offenses can be handled through the expertise that compliance officers bring and the in-house strategy of FIs. This is where the risk-based element of a risk-based approach to AML/CFT comes into effect.
Compliance officers can decide based on news decay, timeliness, patterns of behavior, severity of the offense and an individual’s track record to decide if the FI should be doing business with them. Sometimes an FI will want to take a risk on a client and can have them flagged for greater scrutiny during the relationship.
Taking a risk-based approach to adverse media means supervising risk factors in the financial system and taking action where appropriate. To find out more about how to deal with adverse media, head over to our AIM Insight page.