Keeping Up With Technology: Compliance in Real Time

As business services increase in sophistication and speed, so do the compliance expectations surrounding them. The spur of innovation, fueled by the unshakable will of the digital consumer, has driven companies to deliver systems that provide instant gratification.

Few industries are immune to this pull, and while most celebrate the convenient grandeur of instant payments and digital services, far too few have kept pace where watchlist compliance is concerned. Moreover, those businesses that are trying to remain compliant find their internal departments at odds in a tug of war between operational efficiencies and the risk of noncompliance. The truth is watchlist screening can be a double-edged sword. It is absolutely necessary, yet it has the potential to yield a subpar customer experience if not implemented with the same real-time satisfaction consumers have come to expect.

The best answer to this challenge, for any company, is identifying its standard of compliance based on its unique risk appetite, while simultaneously decreasing the negative operational impact. To accomplish this task, real-time watchlist screening has emerged as the pan-industrial best practice, and has proven invaluable to rapidly growing, digitally driven businesses.

Real-time watchlist screening that is integrated into existing business processes—providing immediate feedback—is the only way to avoid risk while maintaining the kind of instant response times customers have come to expect. Furthermore, automated watchlist screening solves several additional business challenges, including:

  1. Managing Multiple Data Sources
  2. The sheer volume of data that some companies generate is nearly inconceivable. Organizations must handle high volumes of individual, point-in-time screening requests and receive the results in real time, so the fulfilment of services is not interrupted.

    On top of this, data analyst teams must be appropriately staffed to avoid unnecessary operational costs, yet ensure compliance efforts stay within the scope of an organization's risk appetite. These teams, with real-time screening, can continue to use familiar internal data systems in the most efficient way, since the automated platform will flag only those transactions that appear suspicious and need attention.

    External data management also is a necessity, lest we forget the various governmental watchlists that exist through the Financial Crimes Enforcement Network, the Office of Foreign Assets Control (OFAC), politically exposed persons and other regulatory agencies. Depending on the industry, companies can have dozens of watchlists to screen against, all of which are updated at different times and in different manners.

    To manage data from these and other sources, manual list-screening methods have long been abandoned in favor of automated systems. For companies that need real-time screening, the manual alternative takes too long and yields a far higher risk of human error.

  3. Including Language Translation/Transliteration to Reduce False Positives
  4. Companies seeking to expand through globalization must be able to screen customers and entities in various languages—including accent characters and script languages—in order to remain compliant with all watchlists and regulations.

    This requires software that can transcribe both foreign languages and non-Roman symbols into a format that can be accurately measured, since most government agencies use the Roman alphabet.

    For example, the Japanese name "Akira" is represented in native script as 明, and that difference could either let a positive match fall through the cracks, or result in a series of manual translation efforts to mitigate the risk of a missed match. In cases of large, multinational companies, customer names can span multiple languages, and even small companies with multilingual customer bases find excessive manual translation processes a costly operational burden.

    Implementing translation software decreases the operational burden of multilingual screening compliance, which in turn allows staff to focus on investigating true matches.

  5. Monitoring Payment Flows
  6. With companies that rely on digital payments to drive their business, payment flows are typically routed through multiple internal applications. These disparate data systems are effective sources on their own, yet are problematic when dealing with the company's holistic compliance needs.

    Whether it is a customer onboarding process, an online transaction, or any other exchange, the company must screen the various payment flows in real time and be able to aggregate those results. This task can be accomplished through the automated power of application programing interfaces (APIs).

    APIs serve as the medium for machine-to-machine communication, which allows disparate systems to communicate with each other instantaneously. An API can take a name from an application system, for instance, check that name with other data systems and watchlists for possible matches, and synchronously respond to the user with a "flagged" or "all clear" answer. This lets the flow of the transaction, authentication, or service remain undisturbed by the sluggish nature of manual screening.

  7. Connecting Services and Transactions with Screening
  8. Batch screening, the practice of dumping a large amount of data to be screened all at once, certainly has its benefits, particularly for retroactive screening. However, for industries delivering products or services in real time, this method alone is insufficient, because any positive watchlist match that arises would be reactive in nature.

    For example, consider a shipping company that provides same-day delivery for a package whose sender happens to be sanctioned by OFAC. If that sender is screened only in batch form at the end of the day, that screening is a moot point—the OFAC violation has already occurred and the shipper could pay a hefty fine.

    To avoid sanctions penalties, this reactive approach has been replaced by a more proactive approach in many industries, including insurance, logistics and money services businesses, where real-time validation of transactions and the transfer of goods is crucial.

    By understanding these business challenges, as well as the strategies and benefits surrounding real-time screening, digitally driven companies can gain confidence that their compliance requirements are met in an operationally efficient manner.

Michael Brown, CAMS, vice president of product strategy, CSI Regulatory Compliance, Charlotte, NC, USA,

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