Introduction:
In the wake of emerging financial crimes, the use of the term “watchlist screening (WL)” has become increasingly prevalent. Conventional KYC measures including watchlist screening service haven’t changed in the past 15 years. Despite advancements in the nature and complexity of financial crimes, little attention has been paid to modifying AML controls.
The main goal of watchlist screening is to identify individuals who are deemed as a threat to financial stability, public safety, and national security and to prevent your business from being used to launder risky activities.
However, keeping pace with evolving threats, watchlist monitoring service is not amplified to meet the ongoing demands of detection, bringing forth challenges & limitations fortifying false positives and operational inefficiencies.
This blog will be your walkthrough of challenges associated with ongoing watchlist screening, key strategies to make screening aligned with fraud trends of 2023, and more. Keep reading ahead to know all about it.
Understanding the Challenges of Watchlist Screening
The Office of the Comptroller of the Currency and the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN), fined USAA Federal Savings Bank $60 million for failing to implement and maintain an anti‑money laundering program that met the minimum requirements of the US Bank Secrecy Act (BSA).
FinCEN highlighted some of the key problems in its 29-page report on the case which declared:
- By 2021, their screening system failed to flag over 1,300 cases – an unmanageable number of high-risk alerts and cases.
- AML failures resulted in a failure to accurately file 3,873 SARs.
- Insufficient information at account opening to assess a customer’s risk and support effective suspicious activity monitoring.
- The bank arbitrarily assigned risk scores to customers, where member data was missing resulting in not a single person marked with a score higher than 5 and nearly 11,500 customers marked as having low-medium risk score.
- Additionally, USAA FSB supplemented 76% of its compliance staffing needs with third-party contractors.
In light of the lack of AML controls, here are some of the most prevalent challenges to exist:
Alert Overload
AML controls among many organizations lack a clear understanding of sensitivity and specificity to minimize alert fatigue and practice appropriate flagging of red flags.
Matching Algorithms
Many organizations rely on manual matching capabilities, leading to errors regarding spelling, name format, languages, and proximal and phonetic analysis leads to inaccurate screening results.
Data Quality
Incomplete or outdated data from either watchlists or customers demands urgency for a proactive approach, for criminal sources to never slip through the gaps.
Scalable Solutions
Navigation through large sets of data without the accessibility of prioritizing business-specific high-risk alerts hinders overall efficiency and productivity.
Step-by-Step Process for Industry-Leading Watchlist Screening Solution
The Six Sigma Framework coupled with the DMAIC approach offers a comprehensive understanding to optimize your watchlist screening process for ultimate KYC brilliance.
Step 1: Define Clear Objectives
An efficient watchlist screening system is always marked by a clear presence of goals and objectives, setting the foundation for targeted improvement.
In the case of USAA Federal Savings Bank, an unimaginable number of false alerts depicts a lack of defined goals, and inefficient KYC processes highlighting the need for targeted screening.
Step 2: Measure Reporting Failure
Quantifying the performance of your screening system on key matrices including false positive/ negative rate, processing time, or reporting failure provides a baseline for the measure of improvement.
The USAA FSB’s inability to quantify SARs necessitates the need for timely analysis of system flags to avoid global compliance failure.
Step 3: Analyze Root Inefficiencies
Integrate data analysis techniques to identify areas where modifications can be made to streamline the screening process.
In the case current scenario, incomplete data during onboarding requires a complete track of causes which leads to unguided onboarding.
Step 4: Improve By Implementing Solutions
Refine existing screening algorithms with advanced screening controls to keep AML screening armed & secure.
The bank could avoid the legal hassle with an automated watchlist screening service with a custom risk-scoring engine for precise screening.
Step 5: Control & Sustain Enhancements
Implementing regular monitoring & auditing processes is the last but integral part of the systematic watchlist screening process.
Integrating on-premise solutions helps maintain due confidentiality and privacy, sustaining in-house efficiency gains achieved through the theoretical implementation of a validated framework.
Final Words
This advanced methodology of the Six Sigma framework can help organizations achieve a more streamlined sanctions & watchlist program capable of guarding against highly sophisticated risks as well.
Learn more about global watchlist screening and amplify your screening process like never been practiced before.
