Following the invasion of Ukraine, financial institutions have seen a tidal wave of sanctions. Implementing strong sanctions screening tools enables FinTechs and neobanks to bolster their market reputation.
Flagright has released a new report exploring why sanction screening is important for FinTechs and neobanks.
Sanctions screening processes involve checking transactions, customers and counterparties against lists of individuals, organisations and countries that are under sanctions from governments, international organisations or other regulatory bodies. These processes ensure a financial individual does not engage with one of these individuals.
Financial institutions, including FinTech and neobanks, are subject to strict AML regulations that require them to conduct due diligence on customers and transactions to ensure they do not engage with illegal activities. A core part of this is sanctions screening.
It added that FinTechs and neobanks often operate in a highly competitive market and a reputation for compliance and integrity is key to their success.
Through an effective sanction screening process, FinTechs and neobanks can protect their reputation and avoid the negative consequences of engaging in transactions with high-risk individuals or entities, Flagright said.
How to conduct effective sanction screening
To conduct effective sanctions screening the firm will need to access up-to-date sanctions lists. These are available through government agencies, international organisations, and financial regulators.
Following this they will need to screen all transactions against the sanctions list to find any matches. This process needs to include a review of the names of individuals, organisations, and countries involved in the transaction, as well as any related information such as addresses and identification numbers.
To accelerate these processes, they should implement an automated system that can screen transactions in real-time.
Once a transaction has been pinged, the firm would need to conduct a thorough review and investigation to see if it is a true match or false positive. Flagright stated that firms should have clear procedures in place for conducting these reviews and investigations and deciding if a transaction is blocked.
Finally, the firm needs to ensure the sanction screening procedures are monitored and updated when needed.
It concluded, “Conducting effective sanctions screening is essential for FinTechs and neobanks to comply with AML regulations and to mitigate the risk of financial crime. By following these best practices, FinTechs and neobanks can ensure that they are conducting comprehensive and accurate sanctions checks, protecting their reputation, and avoiding the consequences of engaging in transactions with high-risk individuals or entities.”
Read the full report here.
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