Newcomer's Guide to the AML Galaxy, PEP Data and Screening Solutions

The KYC2020 Guide to PEP Screening: PEP Data and Screening Solutions

The KYC2020 Guide to PEP Screening: PEP Data and Screening Solutions

What features and technologies should you look for in today’s PEP data and screening solutions?

In the previous article of the KYC 2020 Guide to PEP Screening, we learned that engaging with PEPs and RCAs who are involved in financial crime can be damaging to your financial institution’s reputation. Although you may already recognize the risk and have tried to address it with legacy screening systems, your current program may not provide enough protection and oversight.

AML/CFT systems and procedures need to protect your financial institution against corrupt PEPs and RCAs. However, these days they must do so while accurately verifying legitimate transactional activity and creating a positive customer experience.

Slow customer onboarding and the constant drumbeat of false positives will eat up your profitability and your competitive advantage. On the other hand, failing to identify corrupt PEPs or RCAs can lead to unwanted regulatory attention and action.

Thanks to AI and advancements in regulation technology (RegTech), screening for PEPs in global watchlists, government sources, and in adverse media is more effective, fast, and affordable than ever before.

Over the next four years, the global RegTech industry is expected to reach $16 billion. Much of this growth is driven by a wave of up-and-coming fintech innovators. These companies are harnessing advanced technologies to make AML compliance more doable and budget-friendly for smaller organizations and FinTech. In the process, they are leveling the playing field for financial innovators against their bigger, more established competitors.

Considerations Before Choosing PEP Data and Screening Solutions

One of the most important things to understand in your search for PEP data and screening solutions is that not all solutions (or vendors) are created equal. Not all solutions will be a perfect fit for your organization, either.

To give your institution a good chance of finding the most suitable tools for the identification and prevention of PEP financial corruption, keep in mind the following three considerations:

1. What are your needs?

Which kinds of PEPs or RCAs do you work with? What types of products or services does your organization offer that would be of interest to them? What is your workflow, and what AML/CFT compliance tools or technologies do you already employ?

Another important point to consider is how much direction and assistance you need to set up and run these tools. At KYC2020, for example, our CAMS and Vskills certified specialists help clients define a risk-based approach to compliance that fits their risk profile. We can also tailor our products to fit established workflows and assist with the integration.

2. What are the specifics of the PEP data and screening solution?

What is the scope of the solution? What methodologies does the vendor use? Does the AML/CFT compliance database go beyond sanction lists and other standard databases? Does the vendor also include other sources of data for PEP identification, such as negative news databases? How much of this data is truly necessary and how well is the data structured and de-duplicated? Does the vendor use advanced technologies such as AI and NLP for identity recognition and resolution? What search technologies does the software use to filter matches? How often is the data updated?

3. What kind of relationship does the vendor offer?

Who is the vendor and how do they work with their clients? Do they have experience working with your type of financial institution, credit union, Fintech company or MSB? Do they offer direct assistance and support to get started or integrate, as mentioned above?

Elements of a Good PEP and RCA Screening Tools

The most reliable, efficient, and modern data screening systems for PEPs and RCAs will include the following three core functions:

Smart Screening and Verification

Your institution is required by law to conduct reasonable procedures to identify PEPs either before a relationship is established or as part of the onboarding process. The quality of such screening, however, depends on the quality of the data you use. PEP and RCA sanctions screening always starts with traditional sanctions lists and Regulatory Authority databases. However, these watchlists are aggregated from thousands of independent sources, are highly unstructured, and are constantly changing. Simultaneously, sanctions are becoming more complex, while the number of regulatory bodies are growing.

In short, maintaining quality data is a resource-intensive challenge.

Given the nature of watchlist data, you must start with a smart watchlist database that is well structured, normalized, and regularly updated to catch true positives while minimizing false positives. This data should be coupled with an intelligent screening engine to help filter, sort and analyze search results.

In the event a firm wants to eliminate the manual effort of clearing false positives and speed up onboarding, they must move from screening to decisioning systems. These smart systems use AI to automatically clear false positives and deliver pass/fail decisions so your organization can speed up its customer onboarding.

The Ability to Conduct Enhanced Due Diligence

Once you have successfully identified a PEP or RCA and have defined the level of risk the individual brings, additional research and analysis may be appropriate. You may want to validate, for example, the individual’s source of funds and/or wealth. The bulk of this added investigation will often include non-watchlist data, such as adverse media screening.

Accounts with a PEP relationship are also subject to enhanced monitoring and periodic review. This helps to ensure that due diligence information remains current and the risk assessment and associated controls remain appropriate.

Automated Processes

Sanction screening still requires a significant amount of manual intervention that can dramatically slow down and disrupt the PEP verification and onboarding processes. False positives in particular will hold your workflow hostage. Most sanction screening systems still yield 5-7% false positives that must be cleared manually by a compliance officer.

Advanced sanction screening solutions leverage latest technologies, such as AI, machine learning, and NLP to significantly reduce such manual intervention. They also go beyond the matching, sorting, and analysis of watchlist data results. Smart solutions, like our DecisionIQTM, can render 95% of all verification decisions automatically in under a minute with a low decision error rate.

Each screening decision is accompanied with a transparent ‘Proof of Decision’ that is electronically stored. The Proof of Decision can be electronically reviewed and annotated by a compliance officer. When a PEP or RCA is identified, they can be assigned to different customer lists based on the risk level. These customer lists can then be set up for scheduled or active ongoing monitoring and alerts. All this can be done via an easy to access online user interface, or via an easy to integrate API library.

Just imagine what your institution could do with all the time, money and other resources that would be freed up under such a system! Decision-making would be a lot more accurate, too.

The point is PEP data and screening solutions are evolving, just as the regulatory environment and even the world itself shifts and transforms. When you are in search of AML compliance tools of any kind, you need to partner with an AML compliance vendor that understands the winds of change. This knowledge should be worked into their collection of solutions. In the financial services sector, such partnerships are what it takes to stay in the game.


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