Watchlist Screening
Watchlist screening is the process of comparing customer data against official watchlists to identify potential risk. Watchlist screening typically involves checking whether a person or businesses is under sanctions from a government or regulating body, whether they are a Politically Exposed Person (PEP) and whether they are a known or wanted criminal. Watchlist screening can also include Adverse Media Screening, which refers to searching for negative news about a given person or entity. Watchlist screening is a key component of compliance programs and regulations such as Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT).
List screening, compliance screening
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WLS
Examples
Before a person can open a bank account, they have to go through the Know Your Customer process. A key part of this process is watchlist screening. Namely, after the person has provided their identification documents, such as their ID, and the bank verifies that they are who they claim to be, they will proceed with the screening procedure. This means comparing the customer’s name to a wide variety of different watchlists and looking for a match. Depending on the perceived risk of the customer, this search may be more or less robust. If any matches are found, they are flagged for further investigation and the compliance officer assigned to the account will decide whether to deny the application or reassess their risk profile.
FAQ
What is the purpose of watchlist screening?
The purpose of watchlist screening is to minimize the risk of a financial institution aiding threat actors in committing financial crime. Namely, if a given customer is a PEP or is under sanctions, the bank can still work with them in some cases. However, they must be labeled a high risk and monitored extremely closely to ensure that they are not committing fraud, money laundering, or terrorist financing.
What types of watchlists are used in watchlist screenings?
Common watchlists include sanctions lists, PEP lists, and adverse media databases. Special third-party KYC vendors will also typically create larger databases that include a wide variety of watch lists for financial institutions to use.
Is watchlist screening mandatory for all businesses?
Under AML and CFT regulations, financial institutions and banks must establish a risk-based framework and screen new and existing customers. Businesses outside of these regulations typically won’t have to perform watchlist screening but can choose to do so in order to minimize risk.
