Recent shifts in the geopolitical landscape have resulted in increasingly complex trade sanctions targeted at an ever-expanding web of economies, criminal gangs, terror groups, and individuals. Though sanction screening solutions have become more effective at reducing these parties’ ability to create havoc, challenges to comprehensive sanctions screening remain. To be specific, here are six sanctions screening hurdles faced by banks and other financial institutions (FIs):
Increasing Data Volumes
Existing customers of FIs are now creating more accounts and using a wider range of finance products and services. The recent COVID-19 pandemic has also spurred more people to rely on digital transactions. Additionally, growth in global wealth has meant individuals from the developing world are now joining mainstream financial networks in increasing numbers. This has meant that FIs today are dealing with ever-increasing transaction volumes.
Those that continue to use legacy sanctions screening systems are facing increasingly difficult challenges in finding instances of fraud or sanctions evasion due to the sheer amount of data they need to sort. That said, newer systems that lean heavily on artificial intelligence (AI) and machine learning (ML) features are much better equipped to deal with the huge increase in transaction and data volumes.
A Volatile Geopolitical Climate
Economies and trading blocs have highly complex relationships. What’s more, these relationships change on an almost weekly basis. Given this, sanctions screening activities also have to account for the ever-changing nature of these transnational connections. All of these activities also need to be done according to the requirements of different jurisdictions and regulating bodies.
Again, legacy sanctions screening systems tend to fall short when it comes to handling these transnational challenges. The failure to account for the changing scope of relations and sanctions may result in hefty fines, which may limit an FI’s competitiveness.
Fortunately, newer systems have been designed to eliminate most of these compliance issues. Additionally, these contemporary systems can be easily customized by the FI or seamlessly updated by the FI’s providers or vendors, ensuring fines and regulatory fees are minimized.
An Over Dependence on Siloes
Many FIs used to employ legacy systems designed before the “Big Data” paradigm changed best practices for automation. Back in the day, data silos were desirable if an FI’s various departments operated independently and used different processes and datasets.
While it still makes sense to use data siloes in certain contexts, they’re nowadays considered a hurdle for effective data automation due to their opacity. To make matters worse, over-siloing may also provide more opportunities for malicious actors to evade detection.
Because of the above-mentioned issues, current sanctions screening software applications are designed to reduce the dependence on data silos, particularly for client information. Once the data has been migrated to a modern software solution, the risks of process inefficiencies in sanctions screening can be significantly mitigated.
Inconsistencies Between Datasets
Related to the previous point, many users of both legacy and modern systems have a tendency to input redundant or conflicting data. Such “dirty” data can be problematic as it skews data accuracy and prevents easy data automation. This, in turn, can cause FIs to waste an inordinate amount of time and energy just to rectify these easily preventable errors.
Customer Experience Issues
Balancing the needs of customers with the realities of financial crime is not an easy task. It’s almost a given that every new policy addition that increases the scope or scale of sanctions will affect not only the targeted parties, but also an FI’s legitimate customers.
Because many FIs are highly customer-centric, suboptimal sanctions screening can have a serious negative effect on their ability to deliver good customer service.
Fortunately, better sanctions screening systems can detect and control sanctions evaders without seriously impacting customer journeys for legitimate users. This is made possible by better artificial intelligence (AI) and machine learning (ML) modules that permit the more accurate profiling of different users throughout a system.
All FIs understand that newer sanctions screening systems are better at detecting malicious actors and reducing false positives. However, implementing new sanctions screening solutions is far from straightforward.
In most cases, a significant amount of time and effort has to be expended to properly migrate data from legacy systems onto new ones. Additionally, FI employees need to be trained in the correct use of new systems so that old issues do not end up repeating themselves.
This is all more difficult than it sounds, especially with the ethical questions that have come up pertaining to Big Data and the use of ML and AI to facilitate learning about individual customers. Because every FI operates in a unique context, there are no easy ways to answer these questions to everyone’s total satisfaction.
If data management issues, false positives, regulatory fines, and security breaches are becoming more frequent, updating your FI’s sanctions screening capabilities is likely to address most of these problems. In any case, the monetary cost of implementing new screening solutions pales in comparison to the potential risks and losses faced by hanging onto legacy systems.