Data management technology overcomes sanctions watchlist challenges

Johannesburg, 22 May 2023
Deneshree Govender, Head of Regulatory Risk and Compliance at Stanlib.
Deneshree Govender, Head of Regulatory Risk and Compliance at Stanlib.

Sanctions watchlist screening has become increasingly costly and complex for organisations to manage, with rapidly growing and changing data, growing risk and more stringent regulatory requirements. 

This emerged during a round table hosted in Sandton by Facctum, specialists in financial crime risk management (FCRM) technology.

Deneshree Govender, Head of Regulatory Risk and Compliance at Stanlib, said key emerging trends impacting anti-money laundering (AML) include crypto currency, cyber crime, geopolitical wars, and the fact that updates to sanction lists occur daily or even more than once a day.

“Businesses don’t always have the necessary tools and resources to meet the obligatory requirements with speed, adequacy, effectiveness and efficiency. If they don’t, they face greylisting, penalties, and losing the trust of customers. Over the years, the watchlist has been one of the best and most viable controls businesses use to help protect the organisation,” she said.

Watchlists – or sanctions lists – are compiled by governments, international bodies and financial institutions, allowing financial institutions to check customers and transactions against lists of suspected terrorists, politically exposed persons, money launderers and other financial criminals.

Anti-financial crime stakeholders from the financial sector who attended the round table said they faced numerous challenges in watchlist management, including siloed operations, having to update the lists repeatedly, merging and deduplicating private and commercial watchlists, and mitigating the risks of lags and delays in watchlist updates. Many internal lists are still created and updated manually using spreadsheets, which can complicate harmonisation and standardisation of watchlists. In addition, slow screening processes could negatively impact customer experience, they said.

Chrisol Correia, Head of Financial Crime Risk Management at Facctum, said the concept of a risk-based approach to sanctions compliance in particular was almost a contradiction in terms just a few years ago. “Regulators expected a very binary approach. Now, there is more scope for interpretation about how far an institution leads an investigation and where it sets its risk tolerance. There needs to be a far better understanding of the sanctions themselves, but also customer behaviour, the way they transact, and their risk profiles. So there is a greater emphasis on controls to deliver a watchlist management regime that is commensurate with the risk profile of an institution.”

Relative to screening or transaction monitoring, watchlist management is vitally important, Correia said. “A lot of the issues further downstream can be resolved by watchlist management, notably with false positives and alert volumes, but also in terms of compliance effectiveness,” he said. “It’s becoming more imperative that the right data is implemented in the right place and at the right time.”

Chrisol Correia, Head of Financial Crime Risk Management at Facctum.
Chrisol Correia, Head of Financial Crime Risk Management at Facctum.

Correia said: “There have been changes in terms of the regulatory expectations of controls and the evidence that can be presented that demonstrate those controls. Whereas a few years ago, it might have been acceptable to load the list for screening within the same day, the speed with which regulators expect the updates to be loaded has moved to almost real-time.”

He said: “The watchlist content universe has grown, and banks have greater volumes of internal watchlists. There may be multiple lists, multiple sources in multiple formats, and an array of different datasets with different characteristics. Whilst institutions have built effective frameworks to manage this, it’s becoming increasingly difficult to sustain. At the same time, regulators are expecting greater standardisation and harmonisation.”

Nicolas Willard, Head of Business Development, EMEA at Facctum, outlined Facctum solutions to help organisations overcome screening and watchlist management challenges. “The FacctList watchlist management solution streamlines processes by presenting the relevant data as opposed to all the data,” he said.

Available as a SaaS or on-premise solution, FacctList is a purpose-built platform that allows organisations to automatically reconcile data with original sanctions sources, which is customisable to accommodate screening scenarios such as transaction and client screening, trade finance, credit cards or cross border payments.

Nicolas Willard, Head of Business Development, EMEA at Facctum.
Nicolas Willard, Head of Business Development, EMEA at Facctum.

Willard said: “FacctList will help you screen transactions and customers more efficiently, and allow you to create, standardise and reconcile your private lists, as well as simplifying workflows and reporting.”

Supporting governance, FacctList allows organisations to easily archive and retrieve versions of watchlists and screening scenarios. “Any action taken by any user is logged for reporting and audit trail purposes,” Willard said.

The benefits include greater efficiency, full control over lists and workflows, reduced false positives, improved faster speed to compliance and a better customer experience, he said.