Sanctions Screening: A Guide for Financial Institutions
In today’s increasingly complex global landscape, financial institutions (FIs) face numerous challenges in mitigating sanctions risks. Effective sanctions screening is crucial to prevent violations and maintain a reputation as a responsible corporate citizen.
Automated vs. Manual Screening
The Wolfsberg Group recommends that FIs use automated screening processes for high-volume transactions and manual screening for smaller batches of names or transactions where reference data cannot be sourced reliably. This approach allows FIs to strike a balance between efficiency and accuracy in their sanctions screening efforts.
Transaction Screening: A Critical Component of Sanctions Risk Management
Transaction screening is the process of monitoring movements of value within an FI’s records, including funds, goods, or assets, between parties or accounts. This involves identifying relevant data elements, such as names, addresses, bank identification codes, and other risk-relevant attributes.
Data Elements in Transactions: A Key to Effective Screening
When screening transactions, FIs should consider the following data elements:
- Parties involved in a transaction
- Agents, intermediaries, and FIs
- Vessels (e.g., IMO numbers) for trade finance-related transactions
- Bank names, BICs, and other routing codes
- Free text fields (e.g., payment reference information)
- International Securities Identification Numbers (ISINs) or other risk-relevant product identifiers
Timing and Frequency of Transaction Screening
Transaction screening should occur at a point in time where a transaction can be stopped before a potential violation occurs. This typically happens prior to executing any commitment to move funds. FIs should direct particular attention to points within the transactional process where relevant information could be changed, modified, or removed to undermine screening controls.
Best Practices for Effective Sanctions Screening
To ensure effective sanctions screening, FIs should:
- Implement automated screening processes for high-volume transactions
- Use manual screening for smaller batches of names or transactions where reference data cannot be sourced reliably
- Identify relevant data elements in transactions and assess their relevance in the context of sanctions risk management
- Screen transactions at a point in time where a transaction can be stopped before a potential violation occurs
- Monitor changes to internal or external data sources that may impact screening results
By following these best practices, FIs can effectively mitigate sanctions risks, maintain compliance with relevant regulations, and protect their reputation in the global financial community.