The digital era has given KYC analysts unprecedented access to a plethora of information on individuals and companies. Newspaper articles, online blogs, and social media are accessible and filterable with one click and may reveal important news on a financial institution’s customer. However, data overload, incomplete and unconfirmed information, and fake news has made the analysis of adverse media a burden for compliance departments, ushering the age of artificial intelligence and machine-learning for customer screening.
Adverse media checks, also known as negative news checks, is the process of screening a financial institution’s client (individual or corporate) against news articles, legal prosecution or similar content that may affect the customer’s final risk by revealing their involvement in money laundering, terrorism, fraud, tax evasion, or other types of crimes.
This inspection starts from the beginning of the business relationship and is part of the ongoing customer risk assessment outlined in KYC/CDD regulations that all financial institutions must respect. The objective is to mitigate any potential threats posed by criminals wanting to use the institution’s financial services, to ensure the transparency of every transaction, to safeguard the institution’s reputation, to avoid any legal repercussions and to safeguard financial markets from abuses.
The result of the analysis can lead to the non-acceptance of the customer, the increase of a client’s risk, the filing of an SAR, or the termination of the relationship with the client.
What is the legislation behind adverse media?
In the international sphere, the Financial Action Task Force (FATF) in its Risk-Based Approach Guidance identifies adverse media searches as a part of Enhanced Due Diligence (EDD) practice concerning individual customer risk assessment.The Wolfsberg Group puts forth a similar concept in its Correspondent Banking Due Diligence Questionnaires, making negative news screening a part of the risk-based approach for sectors or groups that pose a higher risk to financial institutions such as correspondent banking and politically exposed persons (PEPs).
In Europe, the concept of negative news first appeared in the 4th Anti-Money Laundering Directive, 4AMLD of the 20th of May 2015. It describes the need to screen for adverse media as part of the EDD process and should also be applied when there’s an increase of quantity of information that is needed for Customer Due Diligence (CDD) purposes.
In the United States, FinCEN’s final rule commentary of its Customer Due Diligence Requirements for Financial Institutions states that financial institutions should develop risk-based procedures to determine if additional screening, particularly “negative media search programs,” would be appropriate.
What sources are used for negative news screening?
Negative news can be derived for a variety of official news sources or unstructured data sources such as social media, internet forums, or databases.However, it’s always important to check the quality, credibility, and the independence of the source you are using so as to not incur the risk of utilizing biased, partial, or fake news.
News articles not only provide elements on a single individual or company but may also present the names of direct or indirect connections towards other individuals or businesses that may pose a threat to the financial institution.
This article is clear, professional and interesting. It really stimulates me to know more about ways to protect individual reputation even if it is not directly linked to financial analysis . I thank dr. Siggia for this important hint!
This article is full of informative. I can relate very well. Because I'm part of same profile. With one of blue chip company. For eg: Adverse Media Screening, Sanctions Screening, Financial Crimes etc.