How to Adapt Watchlist Screening Strategies for Emerging Markets

The fundamental objective of watchlist screening is to scrutinize and identify suspicious transactions involving sanctioned or high-risk individuals or entities.

But when it comes to effective watchlist screening for financial crime compliance (AML/CFT), increasingly complex watchlist/sanctions screening regulations and false positives are some of the most critical challenges and pain points for banks and financial institutions.

The blog discusses strategies for BFSI institutions to adapt their watchlist screening processes for emerging market risks and challenges.

1. Understand and Comply with Local Laws and Regulations

Sanctions watchlists are constantly evolving, with new entities being added and removed from the sanctions lists all the time. There are multiple sanctioning bodies, such as the Office of Foreign Assets Control (OFAC), European Union (EU), United Nations (UN), etc., with their sanction lists. Regulations can also vary significantly across jurisdictions.

Therefore, it’s important to familiarize yourself and comply with the specific AML/CFT regulations and watchlist requirements in each emerging market.

For this, banks and financial institutions can engage with local authorities and regulatory bodies to gain significant insights into regulatory trends and expectations.

2. Customize Screening Solutions

Customizing screening solutions involves tailoring the screening processes to meet the requirements of emerging markets and avoid potential fines and sanctions while supporting global compliance objectives. For this, banks and financial institutions can:

1. Incorporate local watchlists and sanctions lists into their screening processes.
2. Be aware of local politically exposed persons (PEPs), specific regional sanctions, and lists provided by local financial intelligence units (FIUs).
3. Develop strategies to overcome data inconsistencies, such as variations in name spellings and the use of non-Latin alphabets. This might involve using advanced linguistic algorithms or fuzzy matching techniques.

3. Leverage Advanced Technologies

Implement and use artificial intelligence (AI) and machine learning (ML) to improve the detection capabilities and accuracy of your screening processes, reduce false positives, and enhance due diligence. These technologies can help identify hidden relationships and patterns that a manual or rule-based system might miss.

Similarly, use Blockchain to improve AML compliance and transparency in digital and crypto transactions, especially in countries with high levels of corruption or weak legal systems.

4. Optimize for Efficiency and Scalability

Automation can improve the efficiency of watchlist screening and handle more transactions and customer databases, including watchlists and sanction lists, without compromising accuracy.

Use cloud computing for scalable and flexible screening infrastructure that can easily adapt to new markets, demands, and regulations without extensive overhauls.

Integrating data sources can also optimize the efficiency of watchlist screening. Create a centralized repository aggregating internal and external data sources to reduce redundancies and improve the screening process.

5. Prioritize Training and Awareness

Training programs can help employees understand the risks of regulatory violations and the intricacies of the screening process and tools. Regular upskilling and knowledge management can mitigate risks, such as financial loss, legal penalties, and reputational damage.

The scope of training programs can include:

• Financial crime risks and compliance landscape.
• Cultural nuances of emerging markets.
• Cross-border regulations for financial crime.

Banks and financial institutions can leverage digital learning and knowledge management solutions such as Fluent to boost workforce training and build hands-on execution capabilities within a few weeks to months.

6. Foster Collaboration and Intelligence Sharing

Engage in forums and networks for sharing financial intelligence across borders and among banks, financial services and insurance institutions (BFS&I), regulatory bodies, law enforcement authorities, and other industry partners. This includes:

1. Joining regional networks and global initiatives, such as FATF and FIUs.
2. Engaging in Private-Public Partnerships (PPP).
3. Regular engagement with regulators and law enforcement agencies.
4. Database sharing via encrypted platforms specially designed for the financial industry.
5. Cross-sector alliances, such as with telecommunications companies.

Such collaboration can help banks and financial institutions strengthen their ability to improve the screening process and collectively fight against financial crimes.

7. Regular Audits

Regular audits are critical for effective financial crime compliance and frameworks in banking and financial services. They help ensure that watchlist screening processes and internal controls comply with local and international regulatory requirements. However, this requires a comprehensive audit plan that includes:

1. Independent auditors, preferably external specialists in compliance and risk management
2. Assessment of technology infrastructure to ensure it is up-to-date and secure.
3. Benchmarking against industry best practices to identify weaknesses and areas of improvement.
4. Share audit reports showing compliance status, risks, and areas of improvement

Conclusion

Watchlist screening strategies for emerging markets require a comprehensive and dynamic approach. It’s important to understand local regulations, customize screening solutions, leverage advanced technologies, and optimize for efficiency and scalability.

By combining employee training, collaboration, and regular audits, financial institutions can improve watchlist screening and manage financial crime risks.

To learn more about adapting watchlist screening strategies for emerging markets and improving the watchlist screening process for managing financial crime risks effectively, visit www.anaptyss.com or reach us at [email protected].