Although no universally agreed definition or approach to adverse media screening exists, it is widely taken to mean searching media sources to find any possible negative news about the individual or business entity being onboarded (or refreshed in the case of existing customers) that might pose a risk to financial institutions in terms of money laundering or terrorist financing.

There are a number of difficulties that quickly begin to emerge at a practical level. What risks are relevant? How do I find relevant risk information? How do I decide if the information found is significant? How much time and effort should I put into finding adverse media? What should I do if the information found is inconclusive?

Unlike sanctions or even politically exposed person (PEP) screening which are binary – the entity is either sanctioned or not and an individual is either a PEP or not – adverse media screening covers a varied range of potential risks related to predicated criminal offenses that result in the proceeds of criminal activity. This can range from all forms of trafficking, fraud, cybercrime, and terrorist financing to intellectual property theft. The closest guidance to defining what risks these are was provided by the Financial Action Task Force (FATF) which lists over 20 specific crimes that lead to money laundering.  The extent to which these categories of crime are reflected in the regulations and legislation of individual countries varies considerably, but there is increasing convergence in adopting this range of offenses in major financial jurisdictions such as the EU, USA, UK, and Singapore. 

Recognizing the need for standardization in the way banks approach adverse media screening in their due diligence operations, the Wolfsberg Group recently published an FAQ Guide in their series on negative news screening.

Yet a huge challenge remains for any regulated entity: How to synthesize the vast amounts of data available in the public domain from the array of data points across the entire internet including deep web, surface web, websites, blogs, and social media as well as broadcast and print media. How do firms find the proverbial ‘needle in the haystack’ – the actionable risk intelligence on an individual or business customer that could be indicative of a crime?

Quite apart from the time taken, the cost of acquiring, processing, and acting upon any information found, and then ensuring that information found can be trusted, compliance analysts need exceptional skills to interpret often conflicting information.

How can this problem be overcome? Traditionally, banks have relied on a combination of sources including structured and unstructured data sets which are curated by specialist firms but are costly. Google searches are still heavily relied on by many firms despite the obvious shortcomings of using search engines for financial crime compliance. They are low-cost but ineffective. 

New solutions are essential. For example, regulators in the United States have added sharper teeth to FATF guidelines by enforcing the customer due diligence (CDD) rule requiring covered financial institutions to maintain “appropriate risk-based procedures” to continuously monitor and update customer information.

Technology in adverse media solutions is leading a revolution in this area by enabling firms to acquire meaningful and relevant risk intelligence quickly and efficiently and without the mountains of media findings found by traditional methods needing to be read and interpreted by analysts. A combination of machine learning and natural language processing technology can be trained to find media articles of relevance including in local languages in the selected areas of predicated offenses that relate to money laundering and terrorist financing risks. 

This revolution in adverse media screening is delivering actionable intelligence, empowering organizations to manage higher levels of risk, and for compliance teams to spend their time analyzing, interpreting, and understanding real risk rather than reading endless articles.

In today’s complex environment, financial regulators are on high alert for money laundering risks. Financial institutions should look for better solutions to conduct adverse media screening and avoid manually carrying out screening with a simple one-time Google search. An adapted adverse media screening solution can successfully automate the timing of screening based on a financial institution’s designated parameters, access and validate a larger number of credible sources, scan a massive trove of information, and reduce the number of false positives potentially clogging up the investigation and escalation phase process.

Celent report: Maximizing the Value of Adverse Media Monitoring

For this report, leading research and advisory firm Celent interviewed global banks from across the world, providing practical tips on how adverse media can be integrated into an existing AML value chain.

Download now

To explore more about the practical benefits of adverse media for compliance teams, explore the pieces below:

• Delivering a risk-based approach with adverse media
• How can adverse media reduce reputational risk?
• The importance of adverse media for enterprise-wide risk assessments
• The business case for adverse media in banking

The post How to make adverse media searches actionable and useful for banking appeared first on ComplyAdvantage.

In other words, conducting an EWRA helps compliance teams define an anti-money laundering (AML) risk rating methodology/model for all obligated entities to comply with AML regulations. If done correctly, it brings a consistent approach and, importantly, the application of risk mitigation processes based on sound principles to every division or domain of the organization. 

Put simply, criminals test the weak spots in a bank’s AML defenses and look to exploit them. An EWRA is a tool to ensure that ‘gaps’ don’t exist. 

At the heart of the EWRA is the risk-based approach which involves a three-step process: 

1. Assess the risks
2. Understand them in detail
3. Put in place appropriate risk mitigation measures and plug gaps in defenses

Higher risks need to be mitigated with adverse media data designed to provide in-depth and specific information on any risk category pertinent to money laundering and terrorist financing. Historically, financial institutions have often overlooked adverse media as an essential risk indicator in combating financial crime, considered a low priority in customer due diligence (CDD) associated mainly with reputation risk. Even if its use is recognized, solutions often rely solely on search engines and are inadequate. In practice, adverse media screening is more significant than estimated, should form an integral part of risk profiling, and is intrinsic to any risk management framework.

One of the main weapons in the fight against financial crime is using adverse media to monitor financial crime risk. Regulators everywhere are beginning to realize its importance as they advocate implementing a risk-based approach by regulated entities. Adverse media can inform an enterprise-wide risk assessment of new and existing customers, providing risk intelligence that goes beyond PEPs and sanctions screening. Used correctly, it can provide a vital defense for banks, protecting them from ‘bad actors’ looking to launder the proceeds of crime.

However, until now, adverse media screening has been a costly and time-consuming process relying heavily upon manual checks of large quantities of articles obtained from unstructured media data sources or from search engines such as Google. As such, banks have only used adverse media screening in a small percentage of high-risk customer situations. Many still solely rely on search engines. Unfortunately, this can easily result in important information being missed. 

As banks and financial institutions grow in size and complexity, consistency and scale become key issues, and a bank needs to take a more strategic approach to adverse media screening. 

Monitoring customer risk and ensuring compliance processes are implemented consistently across the business becomes more complex, especially if the organization is multi-jurisdictional or multi-divisional.  Added to this pressure is the rise of digital financial services often pioneered by FinTechs, which has fuelled customers who increasingly demand a seamless, swift onboarding experience. 

AML controls can get left behind. Often put in place when the business was at a different or early stage of its development, IT systems become outdated, and there is a considerable reliance on manual processes. 

Fortunately, AI-driven adverse media tools are available to help. It is now possible to implement adverse media screening across all customers both at the onboarding stage and in the ongoing monitoring of existing customers. This is important in a dynamic and ever-changing risk landscape where the traditional approach of carrying out periodic KYC checks on a customer at a frequency based on the initially assigned risk category may mean risks remain hidden, in some cases, for several years.

AI-driven adverse media screening solutions are designed to support dynamic customer risk scores. This allows a bank to precisely define the categories of risk it wishes to see for a particular customer, only generating alerts when a risk profile changes significantly. 

As banks continue to grow, they need to ensure that adverse media checks can scale with their customer bases. In particular, they need to ensure their alerts avoid generating high numbers of false positives that have to be cleared manually and risk slowing down customer onboarding.

Effectiveness will remain a hot topic in banking AML compliance – but this has to be achieved cost-effectively. When operating at scale, effectiveness, efficiency, and onboarding times become critical success factors and will directly impact a bank’s competitiveness in the years to come.

Conducting an AML-focused enterprise-wide risk assessment is one of the cornerstones in fighting money laundering. Adverse media screening helps teams make more informed decisions toward risks and identify higher-risk situations where a bank’s response can be quicker because real-time screening takes place.

Celent report: Maximizing the Value of Adverse Media Monitoring

For this report, leading research and advisory firm Celent interviewed global banks from across the world, providing practical tips on how adverse media can be integrated into an existing AML value chain.

Download now

To explore more about the practical benefits of adverse media for compliance teams, explore the pieces below:

• How to make adverse media searches actionable and useful for banking
• Delivering a risk-based approach with adverse media
• How can adverse media reduce reputational risk?
• The business case for adverse media in banking

The post The importance of adverse media for enterprise-wide risk assessments appeared first on ComplyAdvantage.

The benefits of adverse media screening

Adverse media or negative news screening is searching for information relevant to a customer’s AML/CTF risk profile. It is one of the best ways of building an accurate and precise profile of the counterparty risk for a bank while anticipating potential future threats. Configuring a system that supports both a bank’s business goals and compliance obligations while synchronizing with existing internal tools also improves overall operational efficiency. 

A bank cannot manually check thousands of news stories every day in multiple languages. Compliance and AML professionals are painfully aware that manual checks can be time-consuming, costly, and ultimately frustrating. Using traditional unstructured adverse media databases and search engines means reading, digesting, and interpreting dozens of articles or more. Many will be duplicates or irrelevant and often unrelated to the subject. Ultimately, this leads to decisions being taken without the best available information. 

Regulations 

Regulatory bodies have emphasized the need to construct accurate risk profiles for banking clients despite differing AML regulations. They have made screening for negative media an essential legal requirement for know your customer (KYC) onboarding protocols, continued customer due diligence (CDD), and enhanced due diligence (EDD) on potentially high-risk customers. 

In the United States, the Financial Crimes Enforcement Network (FinCEN) requires financial institutions to comply with the Bank Secrecy Act (BSA). Adverse media screening is also instrumental in supporting SAR filing.

The EU’s 6th Anti Money Laundering Directive (6AMLD) mandates banks to perform enhanced due diligence for high-risk customers. At the same time, Financial Action Task Force (FATF) guidelines recommend using adverse media searches as part of an enhanced due diligence process. 

The pressure is on banks and all AML-regulated financial institutions to find more efficient and cost-effective ways to fulfill their regulatory obligations while alleviating pressure on budgets and maintaining customer satisfaction.

A risk-based approach

The FATF emphasizes the risk-based approach for mitigating money laundering risks, and under its guidelines, adverse media screening is an important way to help develop accurate customer risk profiles. Politically Exposed Persons (PEPs) and other higher-risk relations are better monitored and receive an extra layer of scrutiny. 

Adverse media and AI 

As a result, many firms are turning to innovative solutions to automate processes and reduce the manual and ineffective processes that still characterize many AML control frameworks in US banks and financial institutions. 

Last year, the FATF published a significant report in this area called ‘Opportunities and Challenges of New Technologies for AML/CFT,’ setting out the case for investing in new technology to improve the speed, quality, and efficiency of measures to combat money laundering and terrorist financing. It states that these technologies can help financial institutions and supervisors assess the risks they face more accurately and quickly. When implemented using a risk-based approach, new technologies can also improve financial inclusion, bringing more people into the regulated financial system and thereby reinforcing the effectiveness of AML/CFT measures. 

The business case and evidence for investing in new technology solutions have never been stronger, with new AI-based adverse media screening and ongoing monitoring solutions changing the onboarding landscape with real-time and dynamic customer profiling.

The new generation of adverse media screening solutions aims to provide a 360-degree view of customers across both individuals and legal entities. This creates a more rounded and informed view of potential risk during the assessment process with a more accurate risk score at the beginning of the customer relationship. It also ensures that ongoing monitoring is more focused on potentially riskier relationships, providing alerts in real-time should a risk profile change significantly.

Adverse media as an investment

Building a business case to support investment in AML systems has never been easy. Boards of directors tend to view AML compliance as a cost to the business as opposed to investing in anti-fraud solutions that can be more easily tied to the bottom line. However, there has been a marked increase in interest from boards and executives following several high-profile breaches, resulting in huge fines and considerable management time spent dealing with the fallout. Boards now accept that adverse media screening is essential to managing the spectrum of risks that a firm is exposed to. This is moving beyond the ‘established’ range of money laundering and terrorist financing risk into human trafficking, human rights abuses, modern slavery, and environmental crime. AI-based adverse media screening solutions can be trained to monitor all relevant risk areas in real-time if necessary.

Ease of integration and operational efficiency

The final puzzle to consider in the business case is the ease of integration and associated professional services costs. Integrating an adverse media solution into an existing workflow should maximize the operational efficiency of a bank’s risk mitigation program with minimal integration costs.

Using adverse media banks can radically improve their efficiency and effectiveness by viewing AML compliance not just as a regulatory requirement but as part of its core strategy to enhance competitiveness. 

Celent report: Maximizing the Value of Adverse Media Monitoring

For this report, leading research and advisory firm Celent interviewed global banks from across the world, providing practical tips on how adverse media can be integrated into an existing AML value chain.

Download now

To explore more about the practical benefits of adverse media for compliance teams, explore the pieces below:

• How to make adverse media searches actionable and useful for banking
• Delivering a risk-based approach with adverse media
• How can adverse media reduce reputational risk?
• The importance of adverse media for enterprise-wide risk assessments

Footnotes:

1. Cost of Compliance Report 2022: Officers face competing priorities & future planning – Thomson Reuters Institute 
2. https://www.fatf-gafi.org/publications/fatfrecommendations/documents/opportunities-challenges-new-technologies-for-aml-cft.html 
3. https://www.wolfsberg-principles.com/articles/publication-negative-news-screening-faqs 

The post The business case for adverse media screening in banking appeared first on ComplyAdvantage.

Yet, unexpected events and resulting bad news can quickly damage a bank’s reputation and stock value. 12.6% of sudden plunges in stock prices are attributable to reputational issues, according to research from business consultancy Oliver Wyman. So why are so few firms taking adequate steps to protect their reputations? Even large organizations can be caught off-guard and suddenly find themselves managing events reactively.

Managing reputational risk is a complex and ongoing discipline in the banking industry. Regulations, digital innovation, the internet, sanctions, cybersecurity, and data breaches converge with rising levels of financial crime and fraud to create a unique risk landscape that is difficult to manage. 

Financial crime risk is heavily regulated from a money laundering and terrorist financing perspective. US banks that are governed by the Bank Secrecy Act and regulated by FinCEN are obliged to implement a rigorous control framework to protect customers and other stakeholders from the instability caused by the misuse of the financial system by criminals and terrorists.

Yet, the history of fines in the USA imposed on banks for failure to implement adequate anti-money laundering (AML) controls over the past decade reveals a story of widespread failure to protect the organization and its reputation. Inadequate customer due diligence points to the need for greater use of adverse media screening than banks have used historically.

Few banks escape the attention of the regulator, and with tougher anti-money laundering regulations being introduced, the risks of getting it wrong increase even more. How can banks manage these reputational risks? In short, Know Your Customer (KYC) processes need to evolve rapidly to embrace AI technology and data analytics to implement a true risk-based approach. 

Adverse media screening has a central role in this in going beyond PEPs and sanctions checks to enable a bank to check if it has links to any customers, intermediaries, or correspondent banking relationships with possible connections to money laundering and terrorist financing. Drug trafficking, modern slavery, organized crime, illegal gambling, fraud, and much more – in every case, adverse media can be used to monitor such risks to protect the organization specifically.

FinCEN’s FAQ from January 2021 provides clear guidance that using adverse media alerts from screening can inform a risk concern and indicate that further investigation is needed to assess if suspicious activity is happening. 

However, the first priority for any bank or financial institution is to understand which areas of the business are most exposed to reputational risks. This is a challenging exercise and requires a team approach and expert help. In addition, there needs to be a detailed understanding of financial crime typologies to help better recognize threats pre-emptively. That means building a deep understanding of the specific types of risk that can threaten a firm’s reputation. From this analysis, detailed adverse media screening controls can be implemented, specifically monitoring the identified categories of risk.

Money laundering manifests in many forms and the increasing sophistication of criminals and the use of technology, the dark web, and digital currencies places a greater burden on compliance teams to protect their firms from reputational risk. 

The latest genre of adverse media solutions can extract data from multiple data sources across the entire web operating in real-time, bringing actionable risk intelligence into the customer’s world quickly and cost-effectively. Using pre-defined risk categories and keyword searches using natural language processing technology with in-built workflow tools has made what was hitherto impossible perfectly possible. 

Banks and other financial institutions can now confidently design solutions that provide an effective defense from reputational risks not just with specific higher-risk customers but across the entire customer portfolio. Implemented effectively, adverse media can be the equivalent of a radar system sweeping the horizon to identify incoming threats before they materialize, enabling pre-emptive action. 

As a result, organizations can now use adverse media cost-effectively as part of a rounded risk assessment across the business. Adverse media checks will routinely inform all customer risk assessments and improve the accuracy of resultant risk scores. This provides a much more comprehensive and informed view of potential risk at the onboarding stage.

There is no doubt that reputational risk exposure has become a strategic priority for all banking stakeholders, from the board of directors to employees, investors, and customers. 

Maintaining financial stability, early identification of financial crime risk, and protecting customers and shareholders from losses is paramount. Innovative adverse media solutions now exist to help combat these threats, avoid fines and preserve a bank’s reputation.

Celent report: Maximizing the Value of Adverse Media Monitoring

For this report, leading research and advisory firm Celent interviewed global banks from across the world, providing practical tips on how adverse media can be integrated into an existing AML value chain.

Download now

To explore more about the practical benefits of adverse media for compliance teams, explore the pieces below:

• How to make adverse media searches actionable and useful for banking
• Delivering a risk-based approach with adverse media
• The importance of adverse media for enterprise-wide risk assessments
• The business case for adverse media in banking

The post How can adverse media reduce reputational risk? appeared first on ComplyAdvantage.

In July 2022, the US Board of Governors of the Federal Reserve System stated that: ‘Banks must apply a risk-based approach to customer due diligence (CDD), including when developing the risk profiles of their customers.’ The statement goes on to develop this in more detail, making clear its expectation that banks will fully implement and adopt these principles in compliance with BSA/AML requirements. 

A similar picture is evident in other major financial centers. Regulators in Canada, the UK, EU, and other major financial centers around the world are implementing a risk-based approach to supervision and expect banks and other financial institutions to adopt the same approach.

In the EU, the latest directive for implementation – commonly known as 6AMLD – further strengthens anti-money laundering and terrorist financing requirements by providing a standardized definition of 22 predicated offenses that constitute money laundering. It also expands the penalties and criminal liabilities for failure to prevent money laundering.

Adverse media screening has become an essential element of a bank’s anti-money laundering defenses and is even more important in the implementation of a risk-based approach. 

In carrying out a risk assessment at client onboarding for both individuals and businesses, managing higher-risk relationships requires access to adverse media data to mitigate a wide range of criminal activities, particularly if this could lead to money laundering and terrorist financing.

Therefore, adverse media solutions must be designed to meet the full range of risk categories that may be encountered in AML/CFT customer due diligence checks. AML regulations specifically identify that enhanced due diligence measures be taken if there is political exposure, activity in higher-risk jurisdictions, any previous adverse risk history, or unusual circumstances. In these situations, adverse media screening must be carried out.

The risk-based approach also recognizes that risk is dynamic and the profile of a customer onboarded as ‘low risk’ can quickly change. Traditionally, banks have applied periodic reviews to all customers updating KYC at variable time periods depending on the initial risk assessment. However, the risk-based approach demands a system that can generate alerts as soon as there is a significant change in the risk profile to avoid potential future problems. Often referred to as perpetual KYC, real-time ongoing monitoring of existing customers means being alerted to new risk events with an existing customer to prompt an investigation. Regulators are placing greater emphasis on this aspect as the effectiveness of AML controls is under the spotlight.

Traditional methods of obtaining adverse media from either search engines or databases are unsuitable for real-time monitoring and increasingly banks in the US, Canada, and Europe are turning to solutions that are driven by AI, meaning they’re capable of accessing data from millions of data points on the internet and combining them into actionable risk intelligence in near real-time. 

Delivering improved outcomes with adverse media

Adverse media data that is specifically related to the wide range of predicate offenses defined by the FATF (and now included in the broadened scope of the new Anti-Money Laundering Act in the US) is critical in effectively managing higher levels of customer risk.

Managing risk doesn’t mean straying into de-risking, however. The Federal Reserve Governors statement goes on to say: ‘The Agencies continue to encourage banks to manage customer relationships, and mitigate risks based on customer relationships, rather than decline to provide banking services to entire categories of customers.’

Smart firms are capitalizing on this and gaining a commercial advantage by implementing a robust risk-based approach using technology-driven adverse media solutions to automate many of these processes. This frees up compliance teams’ time, enabling them to properly understand, analyze, and interpret risks for effective decision-making.

Adverse media screening remains an increasingly important aspect of a well-rounded AML program. Although guidance for screening against adverse media could seem less structured initially than other regulatory requirements related to CDD, sanctions, or PEPs, compliance professionals are encouraged to use state-of-the-art tools and automated solutions to reduce manual efforts and not just meet, but exceed, regulatory requirements.

Celent report: Maximizing the Value of Adverse Media Monitoring

For this report, leading research and advisory firm Celent interviewed global banks from across the world, providing practical tips on how adverse media can be integrated into an existing AML value chain.

Download now

To explore more about the practical benefits of adverse media for compliance teams, explore the pieces below:

• How to make adverse media searches actionable and useful for banking
• How can adverse media reduce reputational risk?
• The importance of adverse media for enterprise-wide risk assessments
• The business case for adverse media in banking

The post Delivering a risk-based approach with adverse media appeared first on ComplyAdvantage.

Led by the Treasury and developed by a working group consisting of the Council of Financial Regulators, AUSTRAC, the Australian Competition and Consumer Commission (ACCC), and the Attorney-General’s Department, the report outlines four policy recommendations, including:

• Collecting de-banking data
• Introducing transparency and fairness measures
• Advising the government on the risk tolerances of the four major banks
• Investing in improving banking capabilities provided to digital currency exchanges, FinTechs, and remittance providers

Policy recommendations

The report proposes collecting data from the “Big Four” banks on “the extent and nature of the debanking problem.” A two-phased approach is suggested, with the initial data collection exercise being voluntary before introducing a more formal and regular data collection process under the Financial Sector (Collection of Data) Act 2001. The staggered approach is to confirm the process provides valuable insights before implementing a permanent requirement.

The Treasury also recommends banks apply five measures “designed to increase transparency, consistency, and fairness to individual and small business customers regarding all debanking decisions.” These transparency measures include:

• Documenting reasons for de-banking a customer
• Providing de-banked customers with the bank’s reasoning
• Ensuring de-banked customers have access to Internal Dispute Resolution procedures
• Providing a minimum of 30 days’ notice before closing a customer’s existing core banking services
• Self-certifying adherence to the above measures

The report’s third recommendation suggests banks publish guidance on risk tolerance and compliance requirements for high-risk banking businesses. By outlining the banks’ expectations and standards for maintaining a banking relationship, existing and potential customers in the high-risk sectors will be granted greater clarity on how to meet the banks’ expectations.

Fourthly, the Treasury recommends that consideration be given by the government to fund targeted education, outreach, and guidance to the FinTech, digital currency exchange, and remittance sectors. The report highlights that such an investment would increase the capabilities of each high-risk sector and “enhance compliance outcomes and reduce compliance risk.” 

De-banking concerns 

De-banking is defined by the Financial Action Task Force (FATF) as situations where financial institutions restrict or terminate business relationships with clients, sectors, or even entire countries to avoid risk. 

In September 2021, the CEO of FinTech Australia told the Senate committee that approximately 150 of her organization’s members had been de-banked by financial institutions, with no reason provided or ability to appeal the decision. 

In November 2021, AUSTRAC issued guidance around de-banking, urging financial institutions to take a risk-based, case-by-case approach to managing anti-money laundering and combatting terrorism financing (AML/CTF) challenges rather than simply closing accounts. AUSTRAC’s chief executive, Nicole Rose, also raised concerns that such measures could increase the risk of money laundering by pushing criminals underground where regulators would have less visibility. 

The Treasury reemphasizes Rose’s concerns throughout the report, noting that de-banking could have a “devastating impact” on businesses, individuals, market competition, and innovation in emerging sectors. 

In a statement released on Monday, October 3, Australian Treasurer Jim Chalmers welcomed the report’s recommendations, noting that “the government is committed to promoting innovation and competition in the financial services sector and will continue to work with affected customers.”

Key takeaways

From regulatory sandboxes allowing license-free testing for up to two years to the Banking Royal Commission opening the door to innovation in 2019, Australia’s pro-competition and pro-innovation outlook tee up further legislative and regulatory support for the FinTech industry. 

To stay on top of Australia’s evolving regulatory landscape, compliance staff in high-risk sectors should ensure they are familiar with AUSTRAC’s current guidance: 

• Preventing the criminal abuse of digital currencies
• Detecting and stopping ransomware payments
• Digital currency exchange risk management methodology fact sheet
• Independent remittance dealers in Australia risk assessment 2022
• A guide to preparing and implementing an AML/CTF program for your digital currency exchange business
• SMR and digital currency exchange provider webinar recording

The post De-Banking Policy Advice: Australian Government Pledges Response appeared first on ComplyAdvantage.

During this time, Denmark’s Danske Bank failed to ensure its automated transaction monitoring system monitored the transactions of certain customer groups in its Dublin-based branch. This led to the exclusion of specific customer categories from the transaction monitoring process, including some customers rated by the bank as medium and high risk.

Transaction monitoring failures

According to the enforcement action, the root cause of these failures was found in the out-of-date data filters applied within Danske’s automated transaction monitoring system, which had not been updated since being applied to the Irish branch in 2006. In failing to examine whether the data filters were appropriate within the system, Danske Bank did not consider the specific requirements of the CJA when it was brought into force in Ireland in 2010. 

As a result of an internal audit in May 2015, Danske Bank became aware of the inadequacies in its transaction monitoring system and the nature of the risks it posed. However, the bank failed to notify the Irish branch of these issues and did not take appropriate action for nearly four years. Between August 31, 2015, and March 31, 2019, it is estimated that 348,321 transactions processed through the Irish branch were not monitored for money laundering and terrorist financing risk.

Danske Bank’s failings ultimately led to three breaches of the CJA, all of which the bank has admitted to. In addition to its transaction monitoring failings, the bank breached the CJA in relation to:

• Enhanced Customer Due Diligence: Danske’s Irish branch did not consider transaction monitoring data, which is essential to identify and assess illicit finance risks specific to those customers and determine where any meaningful additional measures might be required.
• Anti-money laundering / Countering the Financing of Terrorism (AML/CFT) policies, procedures, and controls: The policies, procedures, and controls put in place by Danske Bank did not identify the exclusion of certain groups of customers from automated transaction monitoring.

Key takeaways

Automated transaction monitoring systems are essential for the effective management of data. However, ensuring compliance with regulations means introducing, enforcing, and regularly reviewing policies to ensure systems are operating correctly. This may include above and below-the-line testing to model the potential impact of any rule changes

Additionally, compliance staff must ensure that group systems, policies, procedures, and controls are compatible with the legal requirements outlined by the jurisdiction in which they operate.

The post Danske Bank Fined €1.82m for AML Transaction Monitoring Failures appeared first on ComplyAdvantage.

According to the SEC, the violation occurred in part due to a faulty rollout of a new version of the broker dealer’s transaction monitoring system that was deployed in 2019. The SEC noted that the firm failed to undertake country code cross-referencing checks, and did not conduct post-implementation assessments of the new system. Between January 2019 and August 2019, the updated system failed to generate alerts for around 1,708 wire transfers from 18 moderate-risk and 20 high-risk countries. 

The broker-dealer has agreed to pay $7 million to settle the case, in addition to a censure and a cease and desist order without admitting or denying the findings of the investigation.

Wells Fargo enforcement actions

This is the second Bank Secrecy Act (BSA) penalty the SEC has issued Wells Fargo Advisors for SAR filing deficiencies in the last five years. In November 2017, the SEC issued a settled order for its failure to file 50 SARs in an acceptable time frame. The firm’s wider anti-money laundering (AML) program has also faced penalties from US authorities. This has included a $500 million penalty from the Office of the Comptroller of the Currency (OCC) in April 2018 for failing to implement and maintain a satisfactory compliance risk management program, and a $3 billion fine issued by the US government in February 2020 over falsified bank records. In September 2021, the banking giant was hit with a further fine of $250 million after the OCC accused the firm of failing to effectively oversee home mortgages. The consent order issued at that time required Wells Fargo employees to improve their decision-making when evaluating whether borrowers qualify for relief on loan payments. The most recent fine from the SEC comes during a recent leadership transition in the firm’s $2 trillion wealth and investment management division. Sol Gindi was appointed as head of Wells Fargo Advisors less than two weeks before the SEC announced its enforcement action. In March, USAA Federal Savings Bank was also fined for BSA failings in its AML program, including similar issues related to its transaction monitoring systems.  

SAR analysis and guidance 

In 2021 ComplyAdvantage surveyed compliance leaders globally to build an assessment of the state of financial crime in the year ahead. The survey showed that while SAR filings are going up, many firms are struggling to address both the quality and quantity of their SARs simultaneously. In addition to enforcement through fines, our survey found that regulators are showing a renewed focus on providing firms with guidance on how to submit SARs – and why doing so is important. In January this year, FinCEN launched a pilot to enable firms to share SAR intelligence, highlighting the ongoing work to reform and modernize SAR filing by regulators in many jurisdictions globally. “We urge stakeholders to provide input to assist us in developing a program that will help combat illicit finance risks and promote enterprise-wide risk management while ensuring adequate safeguards are in place to protect SAR confidentiality,” said FinCEN Acting Director Himamauli Das.

Takeaways for compliance staff

Broker-dealer compliance teams should ensure new transaction monitoring systems are fully tested and calibrated before launch, using a sandbox approach where necessary, with protocols in place to continually refine rules once live and in alignment with the firm’s wider risk-based approach. Compliance staff should also ensure they complete their due diligence and review the latest guidance provided by regulators on how they would like SARs to be filed in their jurisdiction. The Financial Action Task Force (FATF) has also issued guidance for broker-dealers to help them understand the nuances of a risk-based AML program for this sector.

The post SEC Fines Wells Fargo Advisors $7M for AML Violations appeared first on ComplyAdvantage.

The settlement comes after an investigation managed by AUSTRAC in June 2021, which brought concerns about NAB’s AML/CTF program, systems, and controls to the surface – including issues related to customer identification procedures and due diligence. 

NAB has avoided a major financial penalty for its non-compliance – unlike other Australian financial institutions, including Westpac and Commonwealth Bank of Australia (CBA) which received fines and penalties totaling $2 billion for failing to report customers’ suspicious transactions in 2020 and 2018 respectively. 

In 2021, AUSTRAC chief executive Nicole Rose indicated that work by NAB to fix its shortcomings may see it avoid the severe penalties imposed on Westpac and CBA. “Some of these legacy systems are taking a couple of years to fix which we get and are sympathetic to as long as we’re seeing the progress, and they’re sincere about it,” she said. 

Implementing a comprehensive remedial action plan

Under the terms of the EU, NAB has agreed to complete a remedial action plan (RAP) to uplift the following key areas of its AML program: applicable customer identification procedures; customer risk assessment, and enhanced customer due diligence; transaction monitoring; and governance and assurance. 

Rose has said the investigative work completed thus far has been collaborative and that AUSTRAC will continue to monitor NAB’s progress to ensure actions are taken within the defined timeframes and maintain regular, ongoing discussions throughout the remediation process.

According to the conditions of the EU, NAB is required to:

• Finalize a RAP approved by AUSTRAC by December 31 2024;
• See to any deficiencies or concerns identified by AUSTRAC regarding the activities in the RAP; and
• Assign an External Auditor to provide a final independent auditors report by March 31 2025.

Responding to the EU’s public announcement, NAB CEO Ross McEwan said, “We take our AML/CTF obligations very seriously. We acknowledge the concerns that led to AUSTRAC’s investigation. We will continue to work closely with AUSTRAC as we deliver the agreed further actions.”

Reviewing AUSTRAC guidance

In addition to reflecting on NAB’s compliance shortcomings and the large fines received by other Australian financial institutions for similar failings, compliance teams should pay particular attention to the wide-ranging guidance issued by AUSTRAC in the last 12 months. 

Some of the most recent AUSTRAC guidance include:

• Common reporting errors from compliance teams
• Detecting and stopping forced sexual servitude 
• Preventing misuse and criminal communication through payment text fields
• Source of funds and wealth guidance

The NAB announcement from AUSTRAC also demonstrates that while the regulator has said it is trying to focus more on high-risk industries – including crypto, casinos, and clubs – they are still monitoring the banking sector, and are placing a lot of emphasis on a culture of compliance, and self-disclosure of any deficiencies.

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