By Steve Marshall, Director, Advisory Services, FinScan, an Innovative Systems Solution
In the ever-evolving world of business risks, Know Your Customer (KYC) remains the cornerstone of uncovering reputational and financial harm that may occur in the future. But as information sources become increasingly diverse KYC verification methods might not be enough, and “set it and forget it” doesn’t work anymore. Enter adverse media screening—KYC’s secret weapon for uncovering hidden risks and bolstering your anti-money laundering (AML) defenses.
Adverse media screening is all about avoiding risky business relationships. But it’s not always easy. With the flood of information out there, not only can the initial process feel like finding a needle in a haystack, but continuous monitoring can be overwhelming. Luckily, technology is stepping in to make the process smoother and more effective.
Adverse media screening: shining a light on customer risk
Imagine a customer who passes all the standard KYC checks: ID verified, address confirmed, source of funds seemingly legitimate, etc. Yet, beneath the surface lurks a direct or indirect web of past financial or criminal misconduct documented only in news articles. Adverse media screening steps in, systematically scanning a vast array of sources—news websites, regulatory databases, public records—to unearth negative information that traditional KYC checks might not capture as customers don’t self-report. This may include:
- Financial impropriety: Embezzlement, corruption, fraud, sanctions violations
- Civil or criminal investigations: Links to organized crime, money laundering schemes, past incarcerations
- Regulatory actions: Fines levied for non-compliance; licenses revoked
- Reputational damage: Associations with PEPs, individuals or businesses involved in illegal activities
By uncovering such red flags, adverse media screening offers invaluable insights into a customer’s true risk profile, empowering firms to make informed decisions.
Adverse media screening also helps organizations comply with international sanctions regimes, as they may assist in identifying individuals or entities that are in some way related to the customer or transaction. Those individuals or entities may be sanctioned and, therefore, may impact the risk associated with the customer or transaction. Both the Financial Action Task Force (FATF) and the Office of Foreign Assets Control (OFAC) advocate for these searches as an effective approach to managing risks in this domain.
The challenges of adverse media screening
Adverse media screening sounds simple, right? Just check the news for anything shady about a client or a company during onboarding. But in reality, it’s much more complicated. Customers are living organisms, and what might seem fine during initial checks can change as questionable dealings could surface months later.
Here are a few hurdles organizations face:
- Information overload: There’s a never-ending stream of news, blogs, social media, and other sources. Sorting through this mountain of information to find relevant details on an ongoing basis can be overwhelming.
- False positives: Organizations regularly encounter irrelevant information, casual news mentions, or worse, poor contextual mentions identified as red flags. False positives waste time and slow down the process, making it harder for compliance teams to focus on real risks.
- Language and local differences: News comes from all corners of the world, in many languages, and at different frequencies. If tools aren’t set up to handle multiple languages or regional news on a continuous basis, important information can slip through the cracks.
- Changing risks: Business risks are always evolving. Keeping adverse media screening up to date with the latest global developments can be tough, especially against the backdrop of rising geopolitical tensions and a complex regulatory landscape.
How adverse media screening strengthens business practices
Addressing these challenges with a strong adverse media screening solution can help organizations spot risks early on, enabling them to proactively detect red flags before they become major problems, as well as facilitating continuous monitoring of clients to catch any emerging risks. Companies are also aided in their compliance efforts, with global regulators expecting firms to do more than just basic background checks. Going beyond compliance, adverse media screening helps companies protect their reputation by steering clear of risky business partners—even if regulations allow them to do business.
Adverse media screening should integrate seamlessly with KYC processes that unveil hidden risks byexposing associations with criminal activity or terrorist financing, allowing organizations to take necessary precautions. These processes should enhance due diligence by providing information that clients themselves don’t provide for KYC verification, ensuring a more comprehensive customer profile. And of course, they should also meet regulatory requirements by emphasizing the need for ongoing monitoring of customers.
Elevate KYC by building trust
A strong KYC program is no longer just about ticking boxes. By incorporating adverse media screening into AML and KYC frameworks, firms gain a powerful tool to proactively identify risks, enhance due diligence, and ultimately, safeguard institutions from financial crime. A robust KYC program with adverse media screening at its core is not just about AML compliance—it’s about building trust and protecting the integrity of the financial system.
