Organizations need to perform a detailed politically exposed person (PEP) and sanction check when onboarding new customers, as well as during the ongoing review of clients, to ensure that the organization’s reputation, revenue and capital are protected. Financial Institutions that neglect to do this put themselves at the risk of fines. Between 2008 and 2018 regulators around the globe levied almost $27 billion in fines related to watchlist screening.
Watchlist screening must be a part of any effective FCC (Financial Crime Compliance) program, its purpose is to assist organizations with making judicious and compliant risk decisions. Watchlist Screening can be defined as controls employed within companies to detect prevent and manage:
- Sanctions-related risks by identifying sanctioned individuals, organizations, and illegal activities to which a business may have been inadvertently exposed; and
- Screening of PEPs, which may expose the organization to a higher risk.
Main Watchlist Screening Types
Organizations use PEP Screening to identify politicians and people with ties to international corporations that are government funded. This type of screening is done in two different ways:
- At onboarding, through a self-declarations of the individual.
- Periodically, through bulk screening processes. If a hit is identified, a confirmation may be required from the person of the PEP status.
Sanctions screening is designed to disrupt financial crime and sanctions risk through comparing data sourced from an organization’s operations. Organizations will typically utilize two main screening controls to achieve their risk reduction objectives:
- Transactional screening seeks to identify transactions that involve targeted individuals, organizations, or entities.
- Customer/name screening to identify targeted individuals, organizations, or entities during the onboarding or other crucial stages of the customer relationship.
All businesses in all sectors need to comply with watchlist screening requirements and may be subject to fines. However, enforcement actions are stricter and more prominent in the financial services and fintech industries. It is important to remember that fines are not only levied for sanctions violations but also if the organization fails to implement adequate controls.
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