How to Reduce False Positives with Sanctions Screening
April 5, 2022
Sanctions screening is a key control in the prevention of financial crime risk which financial institutions (FIs) may otherwise be exposed to. Screening should be undertaken to assist with the identification of sanctioned individuals and organizations, as well as the illegal activity to which FIs may be exposed. And with potentially thousands of flagged applications for FIs to review every day, it becomes a full-time job even with a team of people. The operational burden of clearing many flagged applications impacts profit margins by potentially reducing the number of customers accepted.
However, the rise of Regulatory Technology (RegTech) has transformed the way fintech industries operate by monitoring, reporting and complying with the regulation that would customarily take time and result in additional costs if conducted manually.
Why RegTech Is Necessary
- The rise in the number of sanctioned individuals and organizations.
- The number of PEPs (politically exposed persons) is growing quickly, and the adage “once a PEP always a PEP” typically holds. In fact, the largest number of removals from sanction screening lists are for individuals who are deceased.
- The typical PEP has, on average, 10 known associates (a large number), and financial institutions are responsible for flagging those individuals.
- Countries and regions are updating their PEP regulations to include domestic and foreign PEPs.
- “Matching” criteria suggestions from regulatory bodies push compliance teams to broaden the number of matches. However, sanctions lists contain very limited data to help distinguish a real match from a false positive.
With an increasing number of sanctioned individuals and PEPs and a 99.50–99.99% false positives rate for sanctions and PEP matches, existing processes cannot scale. RegTech brings efficiency through automated and manual processes that enables FIs to scale without having to raise their number of compliance specialists.
What does this mean for FIs?
- Reduction of False Positives
- Streamlined Compliance Operation
- Superior Coverage to Minimize Risk
- Facilitating Team Workflows
Automation enables efficient manual review via having:
- All necessary information in one place
- Limited number of matches to review
The most effective solution for reducing the operational burden of sanctions screening is to focus on reducing false positives and minimizing the time it takes to clear a flagged individual or organization.
Acuant Compliance combines patented Digital Identity technology, eDNA, to build, analyze and verify digital identities and looks at an individual’s known associations through public data, social network analysis and other private data sources. Acuant also allows you to screen, detect and track beneficial owners and their linkages in real time. Whether integrating sanctions screening software with your current system or utilizing as a standalone for periodic screening, Acuant Compliance has proven to reduce false positives by over 50%.
Acuant’s Sanctions Screening leverages a wide array of algorithms to decrease false positives and the flood of false negative alerts that plague most systems. While recognizing the need to meet regulatory and legal obligations and demanding the highest standards of effectiveness in identifying sanctioned parties and locations, we believe FIs should adopt a risk-based approach to sanctions screening and consider all aspects of a comprehensive sanctions screening control framework.
To learn more about the latest sanctions news around the world, read the blog: Acuant Compliance Sanctions Update: The Russia-Ukraine Crisis.