When negative news about a firm’s client (which could be a brand, company, trust or an individual) is published in any news platform, it tends to have enormous implications for a financial firm. It also alarms the ring bell for a firm about a client’s misconduct and financial history. Financial institutions are recommended to do background checks and vet their customers before starting a business relationship with them. This is essential as it can have far-reaching implications, for both the financial firm as well as the global money system.
What is Adverse Media in Anti-Money Laundering Compliance?
Adverse media screening provides a financial firm with a broader picture about the history of a client’s financial activities. Knowing the financial history of the client you are going to conduct business with is essential. Adverse media screening helps to detect whether a client is embroiled in some kind of scandal and has negative coverage for it. That negative coverage could be the tip of the iceberg.
Put simply, adverse media screening is the screening of thousands of conventional as well as unconventional sources of information to confirm that your potential client is not involved in any illegal activity and did not commit any financial crime like money laundering, corporate fraud, embezzlement of government funds, bribery, card fraud, security fraud, corruption, drug trafficking, cybercrime, identity theft, money mule, insurance fraud, tax evasion, electoral fraud, smuggling of weapons and beyond.
Conventional sources of information are usually structured forms of information and they are recorded in a physical medium by writing, printing, typing, video recording or sound recording. These include newspapers, books, pamphlets, magazines, television channels, radio stations, and so on and so forth. Whereas the unconventional form of information is usually the unstructured form of information. These include social media platforms like X (formerly Twitter), Facebook, Instagram, LinkedIn, Youtube, Twitch, WeChat, Medium, Telegram, and discussion forums like GoodReads, Discord, Reddit, Quora and others.
Why is Adverse Media Screening important?
In order to prevent ever-rising financial crimes, the Financial Action Task Force (FATF) has made adverse media screening a requirement for the financial industry, not just a recommendation of Anti-Money laundering compliance protocols. A financial firm must be aware of the financial history of its clients and it is mandated to do all the necessary measures to do background checks.
Conducting business with a client that is involved in criminal activities like money laundering could have damaging implications for the financial itself. Therefore, a firm must follow the Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance requirements. It is required by the global anti-money laundering watchdog known as the Financial Action Task Force (FATF). The regulatory guidelines suggested by the FATF are mandatory for the whole financial world to comply with.
Adverse Media Screening Requirements
To conduct the adverse media screening, a compliance team would require good human expertise, and regulatory technology like automated adverse media screening to screen millions of adverse media mediums both conventional and unconventional sources of information. Usually, regulatory tech firms also provide adverse media databases to screen your customer against to detect and analyze any negative coverage of an individual, organization or brand)
Overall, adverse media screening requires a combination of human expertise and technological tools to identify and analyze damaging information about individuals, organizations, or entities.
FATF Adverse Media Screening
The Financial Action Task Force (FATF) has included the adverse media screening protocol as part of Anti Money Laundering (AML) and Know Customer (KYC) requirements. Therefore, all financial institutions including banks, brokerage firms, credit unions, insurance companies, investment firms, mortgage firms, and beyond have no choice but to comply with Adverse media screening requirements.
The FATF is mandated to employ a risk-based approach and to determine the risk levels that a client presents during the onboarding process. If a potential customer carries a low risk of committing any financial crimes, then they are subjected to a simple AML/CFT customer due diligence protocol. However, if a potential customer turns out to be a high-risk politically exposed person of high PEP status then they are subjected to enhanced due diligence combined with adverse media screening.
FATF guidelines on adverse media screening suggest adopting “verifiable adverse media searches” to determine the risk profile of a potential customer, and make an assessment of the industry background of the potential client. The Financial Action Task Force (FATF) suggests screening all the publicly available information regarding a potential client while conducting Customer Due Diligence (CDD) and Enhanced Due Diligence (EDD) protocols.
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