Financial rules and regulations are ever-changing, and businesses need to be educated and adaptable to new AML processes. It’s also any financial institution's responsibility to investigate public narratives and data on the individuals with whom they form relationships. This is where adverse media checks come into play.
These checks are crucial for risk management and preventing financial crime, but what is an adverse media check, and how do they work? In this blog, we’ll take a deep dive into this essential AML process and explore how it fits into compliance procedures.
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An adverse media check involves screening individuals or companies against public source information and records to identify any risks of financial crime. These checks are used to determine if illegal, high-risk or unethical activity has been conducted by a company or customer.
News articles or public press releases
Legal filings or criminal records
Sanction checklists and financial watchlists
Public domain data or government databases
Any information uncovered during this process is used to determine whether allegations or previous investigations into financial crime have been conducted against a customer. It also highlights if a customer is associated with high-risk individuals or PEPs, which is essential for due diligence checks.
These checks are used at various stages throughout the AML process and are an important way of gathering information outside of standard transaction and sanction monitoring. Adverse media checks take place during:
Know Your Customer checks and onboarding
Customer due diligence and enhanced due diligence
Ongoing monitoring
Company mergers and acquisitions
Any financial institution is required by law to comply with anti-money laundering and financial terrorism laws. Part of this compliance is implementing robust AML procedures, and adverse media checks are a crucial part of the process.
Not only does failing to comply put your business at risk of financial loss and reputational damage, but legal action can be taken against you, including fines, operational bans and even prison sentences for individuals involved.
Adverse media checks help to identify risks early in the onboarding and investigation process and stop suspicious customers before they enter your system. These checks help to expose:
Previous or current fraudulent activity
Links to financial terrorism or organised crime
Allegations or investigations into bribery or corruption
These early-stage detections allow companies to decide if further investigation is needed or if customer applications should be immediately rejected and reported.
These investigations can discover evidence or allegations of:
Fraud
Money laundering
Bribery and/or extortion
Tax evasion
Violating sanctions
Human trafficking
Financial terrorism
Corruption
Cyber crime
If any of this information is connected to a customer, it is recorded in a suspicious activity report and escalated to the right authorities and internal AML officers for further investigation and risk assessments.
Information is collected using automated software (and many checks when needed) that spans across a wide range of public sources and databases. Automated systems scan sources in seconds, saving valuable time and resources involved in manual onboarding checks.
Perimeters including customer name, date of birth and any other personal information are screened against adverse databases and any matches are flagged for further investigation. From here, enhanced due diligence can be conducted or false positives confirmed.
Once this information is collected, a risk assessment is conducted to assess the level of investigation and attention needed. A risk level is determined using a number of factors, including:
Type of allegations or charges
Severity of the activity
Credibility of the source
How recent the information is
Different sources and information have different levels of weighting. For example, a social media post or blog with no verification will be held with less regard than official court documents or data published by financial regulators.
Once this data has been collected, manual compliance takes over to review any flagged information. From here, it’s up to AML officers to approve applications or decide if this information is cause to terminate or reject a relationship.
This process also involves the level of ongoing monitoring needed and whether any enhanced due diligence is needed.
This part of the process is crucial and needs to be carefully documented to ensure you cover all bases for security and compliance.
Once a customer is in the system, ongoing monitoring is performed as a standard part of the AML process. It’s crucial to implement adverse media checks into this continued monitoring process, as the status and risk of a client can change at any time. With ongoing adverse media checks, your company will be alerted when anything develops, including:
Recent arrests or charges
New investigations
New regulations that change the parameters of risk
Media and news exposés
In order to ensure the adverse media screening process is effective, there are a few practices every company should deploy.
Ensure you use reliable and global sources rather than just local information.
Use both automated and manual AML processes
Create a document trail of any decisions and important data
Keep teams up to date on AML training and new regulations
Integrate adverse media checks into broader KYC and AML systems
With the right processes, you can create a streamlined AML process that uses adverse media checks to help prevent financial crime.
Adverse media checks are a valuable and essential tool for identifying criminal or suspicious activity that may otherwise be missed during traditional AML investigations. By analysing public information on potential customers, you can offer your organisation an extra layer of defence against financial crime and spot red flags before onboarding begins.
With rules and regulations on AML compliance changing every year, adverse media checks are no longer an optional process.
Here at SmartSearch, our robust KYC checks include detailed investigations on customer data, including external sources and can yield results within seconds. If you want to upgrade your system and streamline your compliance processes, request a free demo today or contact our team for more information.