Customer screening allows regulated entities to perform watch list checks for their potential and existing their clients and identify risks associated with the business relationship.
The main elements of customer screening include:
- PEP checks
Politically Exposed Persons (PEPs) are persons who hold or held a prominent public function. PEPs usually have political influence and often misuse their position for their personal benefit. PEPs are vulnerable to corruption, bribery and are considered as high-risk under the Financial Action Task Force (FATF) recommendations.
It is important for regulated entities to identify all their PEPs and conduct Enhanced Due Diligence (EDD) measures to mitigate the high risks associated with the business relationship
- Sanctions checks
Sanctions are political tools imposed by countries or bodies to achieve a specific purpose without the use of armed forces. The purpose is to exercise pressure over governments, entities, individuals, and groups to change a specific behaviour.
Depending on the sanctions list, it is prohibited to enter in a business relationship or provide specific products or services to persons subject to sanctions.
The main sanctions lists include: OFAC sanctions, UN sanctions, EU sanctions and HM Treasury Sanctions (UK).
Since sanctions lists are updated very often, regulated entities must perform sanctions checks not only on the onboarding of a client but also on all its clientele at regular intervals.
Checks against adverse media means searching for unfavourable news or negative information of a customer in various sources such as:
- Reliable news sites and media
- Databases of international organizations
- Blogs and websites
- Data leak information.
What if the client is a “positive match”?
In case a customer is a “positive match” in the above watch lists, the compliance department must further investigate whether their customer is a true match or a “false positive”. Often, a customer may have the same name with a person who has committed a crime. Further checks and comparisons must be performed between the customer and the person found in the watch list to confirm whether the customer is indeed the person identified in the list.
However, if at the end the client is in a sanction list, the regulated entity must not establish a business relationship with him, or must comply with the relevant prohibitions set by the sanctions body. If the client is either a PEP or has adverse media, must be classified as high-risk and EDD must be applied.
When is screening performed?
Screening must be performed:
- on onboarding
- at regular intervals (i.e., during customer review)
- when there is a change in the customer’s circumstances
- when there is a suspicion for money laundering or terrorist financing.
Customer screening must be performed in a way that does not have any negative effect on customer experience. Unnecessary delays during the onboarding process may cause frustration to the customer who may decide not to finalize the process.