KYC/AML – Is “Sanction & PEPs” Screening Enough?               



If you ask a founder in the FinTech community about the biggest challenges they face, “Compliance” will come somewhere near the top. Some even see KYC/AML regulations as a barrier rather than a way to guard against unsavoury and illicit use of their innovative financial service platforms. If this “tone from the top” dictates compliance process it can lead to a “bare minimum” approach to AML screening with all users being treated equally and only Sanctions and PEP (S&P) data being used instead of the risk-based approach that underpins AML regulation.


More progressive FinTech leaders take a different approach. As one put it recently “My Sanction & PEP screening alerts me if I’m about to onboard the spouse of a senior councillor (technically a PEP under 4MLD) however what I’m really concerned about is dealing with an individual previously arrested for money laundering”


So how to find the needle in the haystack of your FinTech platform? To find and flag these types of risk there are really only two options: (i) employ people to research customers online for additional risk, or (ii) work with market leading suppliers of Sanctions & PEP service who provide deep and global coverage of adverse media proving an automated process.


This week at the AltFi WealthTech Summit Alex Pillow the Regulatory DataCorp (RDC) FinTech Business Director referenced different approaches being taken in the market. He highlighted that efficient and cost effective global risk screening that includes persons or organisation with adverse media can be achieved within a FinTech model.


He shared how RDC clients segment their client lists by risk and apply a multi-filter system to achieve this risk-based approach. One example given was a client using S&P checks for the low risk segment, S&P + selected risk media for medium risk users and a more universal risk screen for those considered high risk. Clients making the most of RDC’s API have made this segmentation seamless, it was explained, with screening in real-time within the risk-based framework demanded by the regulators.


The panel highlighted the importance of adjusting fuzzy matching rules for each type of risk to ensure alerts are relevant and “noise” is suppressed. Also, to avoid the pitfalls of traditional financial service companies who employ armies of staff to deal with screening results, many FinTech companies outsource the first level of alert review to vendors to keep internal teams lean and focused on higher value work.


As platforms grow there will be greater exposure to those that seek to misuse financial services as well as increased scrutiny from the regulators. At a time where evidence of a truly risk-based approach to AML is becoming increasingly important, the winners will be the FinTech companies that see compliance as a competitive advantage by going beyond S&Ps to also include Adverse Media and protect their platforms using vendors who provide better, faster and more cost-effective services.


Hedd Eynon-Freeman is sales co-ordinator at RDC. The views expressed in this belong to the author and not necessarily to or 

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