ARTICLE
Adverse Media Screening - Customer Due Diligence 101
Imagine you sign a contract with a promising business partner. They seem great and can be a major asset for your business. But a few days later you hear that they have recently been involved in a massive corruption scandal. This looks terrible for both you and your company!
The result: loss of reputation, regulatory penalties and possibly even legal consequences. This scenario happens a lot more often than you’d think but there is a solution – adverse media screening.
But what is adverse media screening? How does it protect you and your company from the risks that negative press can bring? In this article, we will discuss exactly how adverse media screening is performed, why it’s important, and how modern software can help banks streamline this process.
What is adverse media screening
Adverse media screening is the process by which banks and other financial institutions check whether any negative news has been published about a potential or current customer. For example, whether they have been accused of fraud, corruption and money laundering. Adverse media screening is done to minimise risk and constitutes an important part of Customer Due Diligence (CDD).
This is because the Customer Due Diligence process dictates that banks and other financial institutions must perform a series of checks during onboarding, as well as throughout the client lifecycle, in order to create a risk profile for any given client.
Based on the result of these checks, and their own risk calculations, the bank or financial institution in question will assign a risk profile to the client. This then influences how further Due Diligence will be performed, making up the foundation for Anti-Money Laundering and Combating the Financing of Terrorism regulatory compliance.
These checks include ,among others, performing Politically Exposed Person (PEP) checks to see whether a person is a PEP, and sanctions screening to see whether the individual or entity in question is under sanctions from a given organisation or regulating body.
Adverse media screening serves the same purpose. But it’s a bit different. For one, unlike the previous two, adverse media screening doesn’t necessarily rely on a specified data source or list but rather encompasses a series of different online searches. Therefore, it can require a lot of resources. To simplify the process, select third-party KYC vendors have created larger databases that encompass many different adverse media sources.
Secondly, it is important to note that unlike PEP or sanctions checks, adverse media screening is not globally enforced. Therefore, while it is highly recommended from the Financial Action Task Force (FATF) to incorporate adverse media screening into your AML/CFT framework, it is not always mandatory.
How is adverse media screening performed
Adverse media screening includes a series of different searches across different sources. For example, a bank might utilise multiple trusted news publications, local papers, different online blogs, and social media.
These checks can be performed manually. But doing so would waste a lot of time and would come with a high risk for error. On the other hand, you can use specialised pattern-detecting software to automatically perform these searches, highlighting name matches that a person can then review. This is the preferred method for most banks and financial institutions.
Additionally, as mentioned above, financial institutions can also utilise third-party KYC vendors to aggregate many different adverse media screening sources into one central database.
All of this is done to save time and improve accuracy, as automated software can perform many more checks than a person. Additionally, since PEP and sanction checks also need to be performed, automated Due Diligence software helps streamline the entire process.
Why is adverse media screening important for compliance
As with PEP and sanction checks and other forms of KYC, adverse media screening helps banks and other financial institutions properly assess risk. This in turn means that they can remain compliant with Anti-Money Laundering, Combating the Financing of Terrorism, and similar regulations.
But unlike PEP or sanction checks, adverse media screening is not directly enforced in many jurisdictions.
However, it is acknowledged that it falls under AML best practices as it can both offer additional information about the customer and even help strengthen other AML processes. For example, let’s say a compliance officer reviews a new client profile and everything seems in order—no red flags in the PEP database and no sanctions to worry about.
But something feels off. So the officer performs an adverse media check and uncovers a recent exposé linking the individual to a major corruption scandal. They can now act accordingly and prevent a potential risk. This shows how important adverse media screening is. It adds another layer of insight and serves as a safeguard.
Additionally, adverse media screening helps financial institutions preserve their reputation and avoid potential public backlash. For example, if they unknowingly do business with a highly controversial figure or a bank that has been accused of laundering money in the past, their own reputation may be at risk.
Therefore, while adverse media screening isn’t as heavily or widely imposed, it can constitute a very important part of Customer Due Diligence.
How modern software optimises adverse media screening
We’ve already mentioned the most direct way modern software aids the adverse media screening process – by utilising automation to speed up the process and cover a wider range of data.
However, there are other factors that are worth considering. Namely, Perpetual KYC. This is because financial institutions are obligated to monitor their clients throughout their entire lifecycle – especially if said client is considered a high risk.
Therefore, clients going through the process of Enhanced Due Diligence will need regular background checks and screenings. This means that even if considering a more manual process, reminders or triggers need to be set in place so that accounts are reviewed on time.
Alternatively, banks can once again benefit from the power of modern Due Diligence software and completely automate this process. This way they will be notified if and when an existing client gets negative news coverage and potentially needs to have their risk score reevaluated.
Conclusion
Adverse media screening is a key part of the Customer Due Diligence process as it helps financial institutions more accurately determine the risk of a given client. It can be performed manually or automatically and can utilise a wide array of different data sources to do so.
With that being said, it can be a very taxing process, as it requires a lot of data to be processed, sometimes multiple times. Therefore, utilising specialised automation software presents itself as an elegant solution for adverse media screening along with other forms of background checks.
Book your demo today and see why leading financial institutions
worldwide trust Atfinity to drive their digital transformation.
Book your demo today and see why leading financial institutions worldwide trust Atfinity to drive their digital transformation.