Of all the risks faced by financial institutions, identifying Reputationally Exposed Persons (REPs) in adverse media is the one most likely to fall under the radar.
Unfortunately, the lack of regulatory guidance for screening customers against negative news leaves institutions greater room for interpretation when implementing a risk-based model.
Institutions that take proactive measures to develop policies and procedures to identify high-risk entities in adverse media can better prioritise risk and reduce the operational burden on managing customer due diligence processes. That includes defining when to perform adverse media searches, how to optimise automation, what information to search for, what information is relevant, and how to use the information received.
Here are five best practices to improve the efficiency and effectiveness of your adverse media screening program.
1. Clarify Timing
Monitoring every single news source 24/7 might be the most bulletproof way to capture all adverse media, but it is neither practical nor sustainable.
A more realistic approach is to identify when to search for adverse media. For example, search for adverse media against newly added account parties at the time of account opening and then revisit the account based on a schedule guided by policy-designated risk criteria (i.e., account type, jurisdiction, expected activity, etc.).
However, relying on a risk-based schedule alone won’t safeguard an institution if it fails to act upon receipt of actionable knowledge obtained between scheduled reviews. In other words, identify event-triggered media reviews – those activities that may warrant a prioritised, ‘unscheduled’ investigation of news sources as a result of newly discovered account activity, law enforcement inquiries, or higher-risk counterparty relationships.
2. Balance Manual and Automated Reviews
Even institutions with the most effective manual processes cannot dedicate adequate staff to review all account parties in depth and keep up with newly identified media activity. As a result, automated processes should complement manual review as an integral part of adverse media screening.
Systems that simply cast a wide net scraping the internet or news source databases will likely produce an overwhelming volume of non-relevant alerts. For more productive screening, look for a solution that answers the question, ‘Who in the customer base has noteworthy news already compiled on them by a reputable data provider?’ rather than, ‘What information exists in the world that may be related to my customer?’
Therefore, automating the ongoing review of news media sources must balance the obvious benefits of daily monitoring and surveillance while avoiding the pitfalls of overwhelming analysts with a sea of hits containing very few actionable items—or worse, missing those actionable items.
3. Apply Risk Categorisation
The identification of adverse media does not result in a binary, black and white designation of ‘risk’ or ‘no-risk’ as is the case with a sanctions alert. Since all adverse media findings are not the same, they require a greater depth of qualification to assess the true level of risk.
Developing models based on categories and severity of adverse media can help to both prioritise the reviews and more effectively understand the appropriate level of risk associated with a client as part of the general KYC profile.
4. Consider the Timeliness of Findings
The concept of news decay is an interesting consideration in assessing risk. Some bank customers whose adverse media findings might have qualified them as higher risk could be reclassified as lower risk with both the passing of time and the absence of subsequent adverse media.
Determining the materiality of adverse media based solely on age can be effective in some instances. However, there are certain types of severity related to adverse media for which time is not a factor, such as negative news surrounding corruption or other serious financial crimes.
5. Ensure Ongoing Monitoring and Surveillance
After determining when to search, what to search and how to evaluate results, the next step is deciding what to do with the information.
A one-and-done screening of any given account party will at best identify risk related to historic activity. Whether findings are material or immaterial (i.e. not severe enough to align with a programme’s calculation of risk), monitoring of those initial findings for future updates is required.
Having a separate, automated process to review updates and changes to already known findings will make more targeted use of resources. Otherwise, there is greater potential for losing sight of updates within the overall results of a volume-heavy general adverse media screening platform.
Download our white paper Negative News Impact: Five Best Practices for Adverse Media Screening to learn more.