An enterprise-wide risk assessment (EWRA) brings a harmonized approach to the types of risk an organization faces. For banks, in particular, an EWRA involves the financial institution identifying threats, critical risks, and impacts that should be considered to manage risks related to money laundering and terrorist financing appropriately.
In other words, conducting an EWRA helps compliance teams define an anti-money laundering (AML) risk rating methodology/model for all obligated entities to comply with AML regulations. If done correctly, it brings a consistent approach and, importantly, the application of risk mitigation processes based on sound principles to every division or domain of the organization.
Put simply, criminals test the weak spots in a bank’s AML defenses and look to exploit them. An EWRA is a tool to ensure that ‘gaps’ don’t exist.
At the heart of the EWRA is the risk-based approach which involves a three-step process:
- Assess the risks
- Understand them in detail
- Put in place appropriate risk mitigation measures and plug gaps in defenses
Higher risks need to be mitigated with adverse media data designed to provide in-depth and specific information on any risk category pertinent to money laundering and terrorist financing. Historically, financial institutions have often overlooked adverse media as an essential risk indicator in combating financial crime, considered a low priority in customer due diligence (CDD) associated mainly with reputation risk. Even if its use is recognized, solutions often rely solely on search engines and are inadequate. In practice, adverse media screening is more significant than estimated, should form an integral part of risk profiling, and is intrinsic to any risk management framework.
One of the main weapons in the fight against financial crime is using adverse media to monitor financial crime risk. Regulators everywhere are beginning to realize its importance as they advocate implementing a risk-based approach by regulated entities. Adverse media can inform an enterprise-wide risk assessment of new and existing customers, providing risk intelligence that goes beyond PEPs and sanctions screening. Used correctly, it can provide a vital defense for banks, protecting them from ‘bad actors’ looking to launder the proceeds of crime.
However, until now, adverse media screening has been a costly and time-consuming process relying heavily upon manual checks of large quantities of articles obtained from unstructured media data sources or from search engines such as Google. As such, banks have only used adverse media screening in a small percentage of high-risk customer situations. Many still solely rely on search engines. Unfortunately, this can easily result in important information being missed.
As banks and financial institutions grow in size and complexity, consistency and scale become key issues, and a bank needs to take a more strategic approach to adverse media screening.
Monitoring customer risk and ensuring compliance processes are implemented consistently across the business becomes more complex, especially if the organization is multi-jurisdictional or multi-divisional. Added to this pressure is the rise of digital financial services often pioneered by FinTechs, which has fuelled customers who increasingly demand a seamless, swift onboarding experience.
AML controls can get left behind. Often put in place when the business was at a different or early stage of its development, IT systems become outdated, and there is a considerable reliance on manual processes.
Fortunately, AI-driven adverse media tools are available to help. It is now possible to implement adverse media screening across all customers both at the onboarding stage and in the ongoing monitoring of existing customers. This is important in a dynamic and ever-changing risk landscape where the traditional approach of carrying out periodic KYC checks on a customer at a frequency based on the initially assigned risk category may mean risks remain hidden, in some cases, for several years.
AI-driven adverse media screening solutions are designed to support dynamic customer risk scores. This allows a bank to precisely define the categories of risk it wishes to see for a particular customer, only generating alerts when a risk profile changes significantly.
As banks continue to grow, they need to ensure that adverse media checks can scale with their customer bases. In particular, they need to ensure their alerts avoid generating high numbers of false positives that have to be cleared manually and risk slowing down customer onboarding.
Effectiveness will remain a hot topic in banking AML compliance – but this has to be achieved cost-effectively. When operating at scale, effectiveness, efficiency, and onboarding times become critical success factors and will directly impact a bank’s competitiveness in the years to come.
Conducting an AML-focused enterprise-wide risk assessment is one of the cornerstones in fighting money laundering. Adverse media screening helps teams make more informed decisions toward risks and identify higher-risk situations where a bank’s response can be quicker because real-time screening takes place.
Celent report: Maximizing the Value of Adverse Media Monitoring
For this report, leading research and advisory firm Celent interviewed global banks from across the world, providing practical tips on how adverse media can be integrated into an existing AML value chain.
To explore more about the practical benefits of adverse media for compliance teams, explore the pieces below:
Originally published October 27, 2022, updated November 11, 2022