5 steps to implement an effective sanctions screening process

Sanctions screening is crucial to any financial institution’s (FI’s) anti-money laundering and counter-terrorist financing (AML/CTF) efforts. It helps companies stay compliant with regulations, protect their reputations, and safeguard the financial activities of their customers. 

However, many businesses face challenges implementing effective and scalable sanctions screening processes. This article explores the reasons behind these challenges and provides five best practices for effective sanctions and watchlist screening.

Challenges related to sanctions screening systems

Like many other AML/CTF processes, sanctions and watchlist screening can put intense pressure on compliance teams. For example:

• Screening protocols are a significant part of the workload of busy compliance professionals who need to balance regulatory requirements with pressure from product and engineering teams trying to optimize the quality of experience the business delivers.
• As businesses scale to new jurisdictions, the burden on those conducting checks also grows. Businesses don’t always have a clear answer for streamlining these processes; instead, they make do with outdated technology and convoluted workflows.
• Even as employees face the challenge of more alerts and false positives, regulators continue to expect robust documentation and auditability across the board.
• Firms often encounter the challenge of having to swiftly update their sanctions screening lists following rapid changes to desigations worldwide, necessitating a proactive approach to compliance.

Without the right technology and processes, sanctions screening can quickly become another weight around the neck of FIs that are often trying to compete at the pace of global competitors.

5 steps to set up an effective sanctions screening process

Given the importance of sanctions and the potential cost of noncompliance, firms should be familiar with sanctions screening best practices to ensure their AML/CFT programs deliver the required results.

1. Align sanctions screening with a risk-based approach

Aligning sanctions screening with a risk-based approach (RBA) involves tailoring the screening process to prioritize higher-risk areas. This means assessing the potential risks associated with different business activities, customers, or transactions. 

By understanding the specific risks, organizations can allocate resources more efficiently, ensuring sanctions screening efforts are concentrated where they are most needed. This approach allows for a more targeted and effective screening process, addressing the varying levels of risk across different aspects of the business. However, adopting a risk-based approach to compliance does not equate to being risk-averse. Instead, it signifies a strategic shift towards a more nuanced understanding of risks and their implications. 

Analysts are increasingly recognizing the importance of financial inclusion and the unintended repercussions of stringent sanctions. For example, in the case of countries like Afghanistan, humanitarian aid is sorely needed but is often restricted due to sanctions. The Financial Action Task Force (FATF) emphasizes the significance of financial inclusion, cautioning against overly risk-averse AML measures that inadvertently exclude legitimate businesses and consumers from the financial system. Instead, the FATF advocates for the development of risk-sensitive AML frameworks, viewing it as a crucial step for countries aspiring to cultivate a more inclusive formal financial landscape. Such frameworks not only ensure access to appropriate financial services for a broader spectrum of the population but also extend assistance to the most vulnerable and underserved groups.

2. Prioritize how data is viewed – not just  what data is viewed

Compliance teams often have to contend with outdated, inaccurate, and duplicated data spread across disparate systems. In such scenarios, hastily implemented sanctions screening processes inevitably produce false positives and waste time.

To set up a sanctions screening protocol that’s both effective at identifying matches and scalable, compliance teams must have access to a single, comprehensive profile of each customer, populated with only the most relevant screening results. An intuitive interface begets an intelligent process.

3. Zero in on the right lists at the right times

A big part of the challenge with sanctions, watchlists, and even politically exposed persons (PEP) screening is the sheer volume of lists that can be monitored globally. Businesses need to filter this global plethora to screen against lists that apply to their jurisdictions, customers, and products.

However, more needs to be done to streamline the screening process. So, it’s also important to use software to automate sanctions screening to ensure compliance teams can set risk-based alerts based on specific intervals and differentiated risk-screening levels from the onboarding phase onwards. Moreover, firms should consider how often their sanctions lists should be updated to ensure the data the software is screening against is up-to-date. To ensure excellent data quality, firms may also consider using human experts to verify any sanctions list updates, using something akin to a 12-eye review process. 

4. Integrate the right controls for rapid remediation

Efficiency and productivity are major challenges facing compliance teams. Precious time is lost when analysts switch between multiple systems to gather needed information or wait for responses from external teams or contractors. By integrating controls across disparate systems, firms can greatly improve the speed of critical onboarding and remediation processes, satisfying customers, relieving employees, and protecting themselves from risk, all with a few simple API integrations.

The integration allows compliance teams to benefit from a single, automated source of information and communication within their own platforms. This, in turn, can streamline important case and manual review decisions.

5. Conduct a comprehensive audit 

Finally, conducting a thorough audit of the sanctions screening process is essential to ensure its effectiveness, efficiency, and compliance with regulatory requirements. This process should begin with documenting each step of the screening process, from decision-making criteria to data collection and verification. Next, the adequacy of the screening technology and software should be assessed, examining its capabilities in terms of speed, accuracy, and scalability. Additionally, the roles and responsibilities of personnel involved in the screening process should be reviewed, providing adequate training where necessary to enhance their understanding of sanctions compliance protocols.

Following the documentation and evaluation phase, compliance teams may choose to conduct a comprehensive gap analysis to identify any weaknesses or areas for improvement in their sanctions screening process – such as data quality, technology infrastructure, and compliance. This involves comparing current practices against industry best practices and regulatory requirements. Once gaps are identified, they should be prioritized based on their potential impact on compliance and risk mitigation. A remediation plan can then be developed that outlines specific actions to address each gap, assigning responsibilities and timelines for implementation. These efforts should be regularly monitored to ensure continuous improvement and maintain a robust sanctions screening process over time.

Automation in the sanctions screening process

Even in smaller FIs, the sanctions screening process can prove to be a non-trivial burden on compliance teams. But this vital process can quickly get out of hand when a business scales to oversee hundreds of lists for thousands of clients conducting millions of transactions a year. It can hurt the customer experience, expose the business to unnecessary risk, and make compliance even more challenging than it needs to be.

This is why automation and software have come to play such a critical role in the most effective sanctions screening processes. As firms adopt more intelligent ways to serve their customers, it only makes sense that they should also adopt more intelligence to manage the risks behind these services.

With ComplyAdvantage’s fully-automated sanctions and watchlists screening software, firms can:

• Minimize false positives. 
• Quickly learn about critical changes to a customer’s risk status.
• Automate ongoing monitoring by moving away from delayed flat file uploads.
• Reduce onboarding cycle times by tailoring the sanctions screening program to an RBA.
• Streamline customer onboarding by improving alert quality with a consolidated, real-time AML risk database.
• Sync with existing tools by integrating data feeds, case management systems, and CRMs to match existing workflows via industry-leading API integration.