Financial institutions are battling to comply with an increasingly complex and intense sanctions regulatory environment as they contend with “multi-dimensional exposures” across the globe, experts in a recent A-Team LIVE webinar said.
Geopolitical tensions, economic conflict and rapidly advancing technological developments are posing new threats to national cohesion, economies and individuals, sparking a regulatory crack down on a grand scale. No longer do those threats come simply from individuals and states, but also entities, corporate vessels, specific industrial sectors – such as AI or mining – and specific technologies.
This layered risk environment demands looking through complex corporate structures, funds, payment chains, and supply chains to identify beneficial ownership and control links.
This has called for an equally robust data management response to enable financial institutions’ compliance teams to implement effective sanctions screening processes to ensure they don’t fall foul of these new measures, the webinar entitled “Navigating Complexity: Best Data Practices in Sanctions Screening” heard.
Expert Panel
The webinar panel comprised Gaelle Maquignon, ITC and Economic Sanctions Lead at Swiss Re; Harsh Shah, Managing Director, Financial Crimes Technology and Analytics at Deloitte Transactions and Business Analytics; and Oliver Bodmer, Senior Product Manager at SIX, the webinar’s sponsor.
A-Team Group Data Management Insight editor Mark McCord moderated the discussion.
While institutions are embracing sophisticated data-management practices to ensure they keep abreast of new developments in the sanctions ecosystem, this has presented its own set of challenges. A poll of viewers found that the chief hurdles they are seeking to overcome are all data related.
Topping the list was managing data quality and entity resolution, followed closely by reducing false positives and alert fatigue. Keeping pace with rapidly changing sanctions regimes also figured high in the list of challenges.
Poor data quality upstream – including inconsistent spellings across jurisdictions, the difficulty of translating foreign names or lack of standard structure in some regulatory bulletins – compromises screening effectiveness.
One panellist noted that without a single customer view or entity resolution in place, firms waste resources by screening the same customer multiple times, contributing to a high volume of false positives. This operational burden consumes significant compliance resources that are better spent on investigation.
Compliance Priorities
A separate poll found that firms seeking to improve their sanctions screening processes were prioritising the strengthening of oversight of third parties and correspondents as well as enhancing data governance and list management.
The increased reliance on data is essential to enable firms to look deeply into the securities and assets they hold – particularly indirect exposure via ETFs or structured products. It requires firms to possess high-quality ownership data before sanctions are enacted, placing pressure on data vendors and internal data infrastructure.
One panellist observed that firms had to have the necessary data on hand in advance of any sanctions changes; guidance comes so quickly that monitoring teams can’t afford to start sourcing data from scratch because the next day they already need to be compliant.
Furthermore, sanctions are increasingly converging with trade restrictions, prompting firms to integrate trade considerations into their risk-based approach to investment screening. The audience poll results underscored this reality, identifying the strengthening oversight of third parties and correspondents as the top organisational priority for sanctions screening improvement.
AI Deployment
Unsurprisingly, artificial intelligence is increasingly being applied to sanctions screening, the panel said, especially in analysis to reduce false positive rates in screening alerts.
Models are being applied to risk score sanction hits, prioritising which alerts are most likely to be genuinely risky for human analysts. AI, including Natural Language Processing (NLP), can also help identify potential sanctions evasion by creating links within unstructured data or detecting veiled terms used to avoid spelling out sanctioned names.
Despite the importance of technology, it is still essential to keep “humans in the loop”, providing auditability and addressing the “black box problem” of AI. Experts recommended that firms must first define a risk-based policy approach and establish clear thresholds before implementing AI.
Establishing a feedback loop between compliance analysis and the automation team is essential to continuously improve AI accuracy, the panel agreed.
The financial cost of non-compliance – which can include fines ranging into the billions of dollars, loss of licences, and massive remediation expenses – demands robust, non-technical controls.
For firms newly beginning their automation journey, the consensus advice was to start small, map end-to-end processes and ensure that human review is incorporated as a central component from the very beginning.
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