Part one of our ISO 20022 blog series looked at the factors that led to the introduction of a new common global payment messaging standard. Part two evaluated the benefits of ISO 20022 and its potential to harmonise the global payments ecosystem, and part three examined the shifting migration deadline and highlighted the key considerations for a smooth transition.
In part four we take a deeper dive into the implications of ISO 20022 on financial crime screening.
There has been much discussion about how the new ISO 20022 standard will increase the speed and accuracy of both domestic and cross-border payments, but an additional, and equally vital, benefit of the new standard is the role it will play in the fight against financial crime.
ISO 20022 sets out to eliminate many of the barriers that currently slow down global payments and add cost. These are the same barriers which, at present, make compliance more complicated.
The Financial Crime Challenge
Requirements for sanctions screening and anti-money laundering (AML) have increased dramatically in recent years, driven by regulations such as the European Union’s anti-money laundering directives (the latest of which, 5AMLD, was implemented in January this year) and the increasing use of sanctions by the United States Office of Foreign Assets Control (OFAC).
The consequences of non-compliance can be severe. In 2019, OFAC fined nearly $1.3bn USD to companies around the world that were found to have violated sanctions programmes or enabled money laundering through their business.
Transaction screening and account screening solutions are essential in helping companies combat illicit activity and stay on the right side of regulators. These solutions, however, are only as strong as the underlying data that feeds them. Inconsistent formats, omissions, and poor data quality hamper the effectiveness of even the best filtering solutions, allowing financial crime to occur despite the best intentions.
Financial crime can be enabled through obscure, false or incomplete data, which hamper screening systems in flagging alerts or recognising illicit activity. The classic SWIFT MT format of payments contains limited information from counterparties, making it difficult to validate whether a client name matches a sanctioned entity, for example.
By providing more detailed information about all parties involved in a payment, the ISO 20022 message format will not only speed up payments, but increase transparency, improve sanctions screening and help organisations better detect and prevent financial crime.
In combination with extensibility and richer data, the consistent structure of ISO 20022 messages makes it easier to share information, further supporting institutions’ AML and sanctions screening operations.
Efficiency and Certainty
The ability to add details and data points to payments messages not only provides greater transparency, but also enables financial crime screening solutions to raise more accurate, relevant alerts. Teams can focus time and energy on true matches and high-risk alerts, rather than wading through significant volumes of false positives.
Additionally, companies still need to take steps to validate beneficiary details, as they do today. While ISO 20022 allows for payments to be enhanced with additional information, companies must remain disciplined in their approach to validation. Misrouting of payments – whether driven by a simple mistake or more sinister motives – is still a very real risk.
Only by embracing this new standard, and also focusing continued attention on validating the information used within payment instructions, will companies be able to reap the full benefits of speed, transparency and security that ISO 20022 will offer.
Accuity can help you adapt your financial crime screening and payment validation solutions in preparation for ISO 20022. Contact us today to speak to one of our experts or learn more in our ISO 20022 whitepaper.
The latest whitepaper from Accuity, A Guide to ISO 20022 and its Impact on Financial Crime Screening, explores the changing market dynamics that have given rise to the need for a common payment messaging standard. It takes a closer look at the benefits of ISO 20022, outlines best practices for migration and provides insight to help organisations better understand the impact on financial crime screening.