Key Criteria for Effective AML Compliance Screening
Jinfo Blog

By Victoria Meyer

Abstract

Victoria Meyer introduces key concepts in effective intelligence screening within Anti-Money Laundering programmes. She discusses the importance of matching intelligence data to the organisation's risk appetite and the impact that additional records will have on search times and hit-handling resources. Pre-screening formatting and consolidation processes in compliance programmes are also covered along with ways to identify compliance software which features robust search processes.

Item

The process of screening client and counter-party names against selected intelligence lies at the heart of Anti-Money Laundering (AML) compliance controls. This article looks at the key criteria for an effective screening process, focusing on the nature of AML intelligence data and going on to consider search technology. 

AML screening is an important risk management control and the consequences of failure can be severe. Regulators may impose penalties for having inadequate controls, whether or not an actual breach has occurred. The main areas that require screening are client acceptance and transaction processing. Financial transactions will usually be subject to high-level screening before they are processed, with a more comprehensive search after the fact to identify those which require follow up action.

Intelligence Data to Suit the Organisation's Appetite for Risk

An effective screening process requires comprehensive intelligence data. Regulatory requirements largely follow ethical obligations, restricting transactions with parties involved in criminal activities. In most jurisdictions there are mandatory lists which must be screened, but additional intelligence added to the screening system will largely depend on the organisation’s risk appetite.

It will often include:

• Sanctions lists from other jurisdictions
• Regulatory notices
• Law enforcement notices
• Higher risk names related to current affairs
• Politically Exposed Persons (PEPs).

The volume and frequent update of this data means that many organisations choose to purchase the bulk of their AML data from third-party vendors, as discussed in an earlier article.

It is often assumed that more is better when it comes to intelligence, but this is not always the case. The risk management value of the data included must be balanced against the impact that additional records will have on search times and hit-handling resources. This is particularly important in the case of real-time transaction screening, where typically only the highest-risk names are searched.

Pre-Screening Formatting & Consolidation

Once the relevant information has been selected, it must be appropriately formatted for screening. Each characteristic should be easily distinguishable so that it can be incorporated into filters and search routines. Particular care should be given to the way names are recorded, as trying to force names of Asian or Arabic origin into a typical Western format can affect screening results.

The records should be consolidated so that parties appearing in multiple sources only appear once in the results of each search. Given the volumes involved, the update frequencies, and the extent of overlap between various watchlists, this is a time-intensive task; another reason why many organisations choose to purchase most of their intelligence data.

Setting up Strong Search Routines

A strong intelligence base will only be useful if it can be effectively searched. Any search routine should aim to maximise both precision (reducing false positive hits) and recall (ensuring all relevant records are identified). The term “fuzzy matching” has become tainted through the use of outdated methods, but modern linguistic matching techniques produce reliable recall without significant sacrifices in precision.

Unfortunately, many compliance suites have not yet incorporated the most modern search methods so it is vital that this component is tested thoroughly before any compliance software investment. This requires a good understanding of transcription and cultural naming conventions, as what constitutes a good match varies greatly between different language bases. Linguistic identity matching is discussed in more detail in an upcoming article in this FreePint Topic Series: Compliance in Context.

FreePint Subscribers can log in now to read more about AML screening in Victoria's longer article: Supporting the AML Compliance Screening Process.

Editor's Note: Compliance in Context

This article is part of the FreePint Topic Series: Compliance in Context, which runs from September to October 2013. Register your interest, and you'll get pre-notification of when registration opens for any webinars in this series, as well as a free copy of the FreePint Report: Buyer's Guide on Regulatory Compliance when we publish in October.

Platinum Sponsors:

« Blog