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FIs Must Screen Transactions Effectively to Mitigate Sanctions Risk

In the wake of increasing regulatory requirements, financial institutions (FIs) must ensure that they screen transactions effectively to mitigate sanctions risk. A recent report by the Wolfsberg Group highlights the importance of screening cross-border payments in real-time, while also acknowledging that domestic payments may not require such scrutiny.

According to the report, FIs subject to different jurisdictions and regulatory mandates should assess their applicable requirements and decide whether to screen transactions to address specific risks. Similarly, an FI may choose to screen a defined set of transactions if it deems the sanctions risks within its local economy or financial system to be outside its risk tolerance.

Data Elements Critical for Sanctions Screening

The report emphasizes that FIs should initially assess which transaction types are relevant for sanctions screening and identify the attributes within those records that are critical for screening. Names of parties involved in a transaction, addresses, bank identification codes, and other data elements play crucial roles in identifying potential sanctions risks.

For example, detection of sectoral sanctions risk typically requires the detection of multiple factors, including targeted parties and prohibited activities. Additionally, certain data elements offer little or no risk mitigation through screening, such as amounts, dates, and transaction reference numbers.

Common Transactional Attributes Screened

The report highlights several common transactional attributes that are screened for sanctions risks, including:

• Parties involved in a transaction, including remitters and beneficiaries
• Agents, intermediaries, and FIs
• Vessels, including IMO numbers, typically in trade finance-related transactions
• Bank names, BICs, and other routing codes
• Free text fields, such as payment reference information or stated purpose of the payment
• International Securities Identification Numbers (ISINs) or other risk-relevant product identifiers

Timing and Frequency of Transaction Screening

The report stresses that transaction screening should be performed at a point in time where a transaction can be stopped and before a potential violation occurs. This typically occurs at several points in the lifecycle of a transaction, but certainly prior to executing any commitment to move funds.

Conclusion

In conclusion, FIs must screen transactions effectively to mitigate sanctions risk. By understanding which data elements are critical for sanctions screening and performing screening at the right time and frequency, FIs can ensure compliance with regulatory requirements and protect their businesses from potential sanctions risks.