As the regulatory compliance landscape continually evolves, having comprehensive compliance solutions—including advanced watchlist screening—has never been more important.
In this whitepaper, we will provide detailed analysis of current regulatory trends and their impacts, and provide an in-depth explanation of adverse media and Politically Exposed Persons (PEP) screening and the application of fuzzy matching techniques.
We will also cover best practices for implementing enhanced screening solutions and explain how these solutions can help regulated firms to comply with specific regulatory obligations such as Anti-Money Laundering (AML), Know Your Customer (KYC), and sanctions.
Regulatory bodies worldwide are intensifying efforts to combat financial crimes. Enhanced scrutiny of economic crime, increased use of technology, and a global push for stronger financial integrity, are leading to more stringent compliance requirements which is impacting businesses in the UK.
The regulatory environment is becoming more complex, requiring organisations to navigate a multitude of rules and guidelines.
The last few years have seen an increased focus on preventing and detecting financial crimes, with regulators like the financial conduct authority (FCA), HMRC as well as sector specific regulators like the Solicitor’s Regulation Authority and the Gambling Commission taking a more proactive role and new regulations coming into impact.
Key changes include the Economic Crime and Corporate Transparency Act, which came into effect in 2024 and provides regulators with new powers to gather information and impose unlimited fines for economic crime matters.
The rapid development of AI is transforming the compliance landscape, because, while AI offers enhanced capabilities for detecting suspicious activities, it also presents new challenges as criminals adopt sophisticated methods to exploit technological advancements. For example, AI can now perfectly simulate an individual’s face, voice, and mannerisms, making it increasingly difficult to distinguish between real and fake.
Notable AI advances include Microsoft’s VALL-E, a text-to-speech AI model that can copy someone’s voice using a three-second audio sample, and ChatGPT from Open AI which can design scripts and create content in any language or dialect in the most natural of ways.
These trends necessitate the adoption of advanced watchlist screening solutions capable of handling complex datasets and providing real-time alerts to ensure compliance.
Just while customer identification is a key part of any good compliance programme, understanding and implementing effective verification and screening processes are absolutely critical. There are several different stages within a good screening process, but there are three key trends that are hugely important when it comes to ensuring a robust process that produces accurate results.
The first is PEP and sanctions screening – this is a technique that has been used for years within AML compliance to identify any individuals or businesses where it is either illegal to work with them, or there is an enhanced risk. The second is adverse media screening – this is a process that is getting more and more difficult to fulfil now that anyone can publish anything, making the volume of content out there almost endless. The third is fuzzy matching – a relatively new technique that is vital when it comes to ensuring the process is not bogged down by false positives or compromised by false negatives.
Adverse media screening is a process that involves searching for negative news related to individuals or entities in order to assess the potential risk of working with them. Manually searching for adverse media coverage is not only hugely time consuming, but open to errors; automated adverse media screening tools is the only way to accurately and efficiently process vast amounts of data to identify relevant information. Using automated systems has never been more important due to the level of ‘fake news’ out there – AI and machine learning is able to weed out false information, and cross reference thousands of legitimate news sources with extensive databases of profiles that have been linked to illicit activities to identify any risks to the business.
The identification of politically exposed persons is a vital part of any compliance screening process as they are at higher risk of corruption and bribery, while the ability to identify any sanctioned individuals is paramount, as working with anyone under sanction is illegal and could result in fines and even imprisonment.
Running sanctions checks manually is an almost impossible task – the sheer volume of data, the propensity for human error and the speed at which sanctions and PEPs lists are changing means you cannot effectively run a screening programme without the help of technology.
Enhanced PEP and sanctions screening - that is able to run initial and ongoing checks in real time, with tailored data segments that deliver authoritative intelligence to fit specific risk-based strategies - can ensure businesses apply appropriate risk-based approaches to their clients and potential clients.
Fuzzy matching, also known as approximate string matching, is a technique that identifies similar, but not necessarily identical, elements in datasets. It is used in a huge number of business sectors, for example search engines and e-commerce sites use it to find approximate matches, even when users misspell words or use abbreviations or variations.
With financial compliance, it is a crucial tool that can help regulated businesses to identify non-exact matches in data such as acronyms and the reversal or variation of a name, shortening of a name, as well as abbreviations, insertion of special characters and spaces, inconsistencies or errors like phonetic spelling, typos or variations in spelling or formatting to enhance the accuracy and effectiveness of sanctions screenings and reduce the risk of overlooking potential red flags. By using algorithms to match similar but not identical entries, fuzzy matching enhances the accuracy of screening processes by reducing both false positives - making the process far more efficient – and false negatives - to ensure nothing is missed.
To effectively implement an enhanced screening solution, organisations need to ensure they implement the following best practices:
Comprehensive data coverage
To enable robust and accurate screening solutions, regulated businesses need to ensure that whatever programme they use has access to extensive global datasets - including sanctions and PEP lists and media sources – to ensure reliable results. It is also vital that the screening solution continuously updates its databases and monitors customer information on an ongoing basis so that it is always up to date and reflecting the current level of risk.
Automation and configurability
While having access to the right sources is key, being able to utilise these sources in the most efficient way is also vital. Businesses must have access to automated systems that are able to pull client and transaction data in real-time so that they are able to recognise and address potential risks as soon as they are identified. It is also important that businesses are able to tailor their solutions to their own unique needs – this should include custom risk profiles and configurable watchlist screening – to ensure the best use of time, money and resource.
Risk-based approach
AML has always been a risk-based process. There is no hard and fast rule for businesses when it comes to the level of screening they must complete – all businesses must adopt a risk-based approach. This means focusing on identifying and mitigating high-risk areas, rather than treating all clients the same. This involves proactive risk management, regulatory compliance, and efficient resource allocation.
By adopting advanced watchlist screening solutions, businesses and organisations are able to comply with specific regulations, such as AML requirements, KYC obligations and sanctions enforcement.
AML requirements
Advanced watchlist screening is able to effectively identify suspicious activities and high-risk individuals or entities, to help prevent money laundering activities.
Know your customer (KYC)
Through advanced watchlist screening, businesses are able to accurately verify their customers and then assess their potential risks through comprehensive screening, which then ensures the business is complying with its KYC requirements.
Sanctions enforcement
Sanctions enforcement has never been so important. To put it in perspective, the UK Government has now sanctioned more than 1,500 individuals and entities just since Vladimir Putin’s illegal invasion of Ukraine, adding to the 5,000 others currently under sanctions regimes implemented in the UK. In the US, around 17,000 people are sanctioned, and these lists are changing all the time. By running automated, real-time sanctions checks on their entire database on an ongoing basis business can ensure that they do not engage in prohibited transactions with sanctioned individuals or entities, ensuring they are always complying with their obligations, and are not at risk of legal or financial penalties or reputational damage.
The evolving regulatory landscape demands advanced watchlist screening solutions to effectively manage compliance obligations. By integrating comprehensive data coverage, automation, configurability, and a risk-based approach, businesses can enhance their ability to detect and prevent financial crimes, ensuring adherence to AML, KYC and sanctions regulations.
The best way to do this, is to use a third-party specialist compliance solution that is automated, configurable and updated in real time.
SmartSearch is a unique digital verification platform delivering comprehensive identity and verification checks on individuals and businesses with automatic screening, enhanced due diligence, data hosting and monitoring.
Identification, verification and screening
SmartSearch uses global data from Experian, Equifax, and TransUnion, plus biometric technology, to verify individuals and businesses instantly. It then -using 1,100 global PEPs and sanctions lists, including the Dow Jones Watchlist - automatically provides real-time screening for Politically Exposed Persons (PEPs), Relatives/Close Associates (RCAs), and Special Interest Persons (SIPs), reducing false positives and ensuring accuracy.
Enhanced Due Diligence (EDD), ongoing monitoring and data hosting
If a risk is identified, SmartSearch automatically triggers in-depth checks, including financial history, adverse information screening, and links to financial crime. All customer records are stored securely and monitored daily and the system alerts businesses to any changes in risk profile, such as a client becoming a PEP or appearing in adverse media. By automating checks, reducing human error, and maintaining up-to-date compliance records, SmartSearch ensures all clients are able to meet their regulatory obligations.
API Integration and configuration
All SmartSearch solutions can be integrated to allow real-time onboarding and PEP checks within existing business systems, enabling ID verification, sanctions checks, EDD all from one platform. Furthermore, all these processes can be tailored to the businesses’ specific needs and risks, and thanks to the platform’s user-friendly interface, staff at all levels are able to conduct comprehensive compliance checks without extensive training.