Identifying negative news should be an important part of a financial institution’s customer due diligence process. When breaking news reveals a client’s involvement with unethical or criminal activity like money laundering or financing terrorism, firms need to be able to identify and assess those stories as efficiently as possible in order to reassess that client’s risk profile and to protect themselves from reputational damage.
However, screening negative or adverse media can involve dealing with vast amounts of data. Firms need to be able to prioritize, and interpret the relevant information – and decide how to act upon it – quickly. With so many administrative factors to consider and the added pressure of regulatory compliance, those processes should be tailored to the needs of their institution and built on an understanding of negative news screening best practices.
With that in mind, to help you optimize your process, we’ve listed three of the most important adverse media best practices below…
1. Manual vs Automated Screening
Screening for negative news means identifying and monitoring a wide range of conventional print and televised media content, along with online content like blogs and social media feeds. Since the process traditionally involves manual checks and human interpretation, the sheer amount of information firms have to deal with during screening makes it labor-intensive and time-consuming. To manage the information collected, best practice guidance suggests using automation to complement the manual elements of the review process.
Automation is obviously faster than human screening and can be better tailored to a company’s unique business concerns – but it also has pitfalls. Setting screening parameters too indiscriminately may result in an overwhelming amount of information for human reviewers (and therefore the same inefficiency problems) while screening too narrowly increases the chances of missing an important story.
Automated adverse media screening is most effective when combined with a manual strategy. Firms might consider when automated checks run, what previous information could inform the automated checks, and what media outlets should be included, in order to better manage and direct the manual review phase.
Not all adverse media is the same: the substance of a particular negative news story may affect a client’s risk profile to varying degrees. Interpreting negative news is made easier by categorization, organizing media according to the type of stories they concern. Negative news may relate to a range of activities and include both civil and criminal misconduct. Examples of adverse media categories include:
- Financial crime: Money laundering, terrorism financing, fraud
- Narcotics: Drug abuse, production, or distribution
- Cybercrime: Any offense involving a computer, or networked device (phone, tablet)
- Regulatory: Non-compliance with regulations may result in criminal prosecution or indicate involvement in associated criminal activities.
Categorization of adverse media is also an important part of FATF compliance, which obliges financial institutions to “understand their clients reputation” along with any previous involvement in criminal activities as part of a risk-based AML/CFT program.
3. Ongoing Monitoring
Adverse media screening can only ever deliver historic information about a client’s risk profile. If that information is not updated, firms risk losing sight of their client’s exposure to risk and being caught out by breaking news.
To maintain the accuracy of their risk profiles, best practice suggests firms should monitor their clients on an ongoing basis. That means implementing a facility to review the findings of adverse media screening and update risk profiles with any changes: an initially-innocuous story may develop and warrant a more significant response such as enhanced due diligence. Similarly, it may be possible to down-grade high-risk clients when their exposure changes.
Ongoing monitoring of adverse media, and other aspects of a client’s risk exposure helps financial institutions better develop their understanding of that client over time. In addition to expanding their perspective on an emerging story, firms may be able to identify patterns of behavior, react more quickly to changes, and ultimately, better fulfill their compliance obligations over the long term.