Its recommendations reflect what smartKYC has been pioneering for years, to the extent they could have been lifted from the smartKYC playbook, right down to the language used. The report highlights the key role technology has in delivering an effective, ongoing NNS programme. This is a summary of its main themes:
1. Reducing false positives
Wolfsberg: Regarding managing alert volumes, “this may include the application of auto-discounting rules embedded within the screening tool, e.g., where irrelevant alerts are automatically discounted using pre-defined criteria.”
“Discounting on the basis of a ‘false positive’ alert may include measures such as:
– Where there is a significant difference between the customer’s name and the name that is the subject of the news article.
– Differences in key secondary identifier information (e.g., date of birth, date of incorporation, gender).
– Consideration can be given toward other data points with ‘weaker’ discounting criteria (e.g., profession, residence and other situational factors which make a positive match unlikely).”
Identity screening of media, rather than just name screening, is at the heart of what smartKYC has always done, in English language text, Russian, Chinese and many more. Being able to pick out identifying attributes such as age, gender, nationality, employer and matching them to the names held on file by our clients is one of the most powerful aspects of our technology. It enables all hits to be scored for relevance and ensures that KYC teams aren’t crushed with false positives either at onboarding, or, critically, in subsequent monitoring cycles.
2. The importance of intelligent name matching
Wolfsberg: NNS Solution criteria include “Matching: effectiveness of name matching, and false positive/alerts hit rate.”
Onomastics, the study of names, is a big subject and if anything, is under emphasised in this report. At smartKYC we have teams of people who not only understand the lexical, grammatical, and syntactical nuances of languages but also naming conventions and their variations. We combine that expertise with advanced technology such as name origin detection and culturally sensitive name transformation. And, we will always work with our clients to ensure our name matching accords with AFC policy.
3. Removing repetition
Wolfsberg: “Consideration should be given to NNS accuracy and completeness, and levels of alert duplication if the same adverse data is found in multiple data sources.”
smartKYC extracts facts from documents and aggregates all snippets (relevant granular excerpts from articles) that support that fact (e.g., historical arms dealing offences, or origin of wealth), regardless of source or language. Deduplication is relatively easy to do, but it is much harder to assemble informationally similar intelligence. smartKYC achieves this because our multilingual natural language processing technology understands the nature of the content in an article. So, analysts get to see facts first, without having to read any articles, let alone read the same informationally similar material over and over.
4. Materiality and source validity
Wolfsberg: “An FI should ensure that Financial Crime related Negative News is distinguished from other Negative News which is not considered relevant. For example, civil proceedings may be excluded from NNS, e.g., speeding fines and public disorder offences which are not related to Financial Crime … . It is recommended that the FI understands the evaluation of reliability performed by the vendor and the controls they have in place to mitigate the risk of unreliable sources influencing the screening process.”
smartKYC can determine not just the relevance of an article to a subject but also its seriousness—we have always used the same example as Wolfsberg, speeding offences versus more serious misdemeanours. Furthermore, because there is a world of difference being accused by US authorities of breaching sanctions and being accused by detractors of being unreliable, smartKYC can make that distinction and would categorise the first as a legal issue and the second as a controversy. Distinctions such as these are particularly important in 24/7 negative news monitoring use cases.
Article validity can be assessed in a number of ways including via reference to the source’s authority score, or through smartKYC’s own assessment of source authority. Since we aggregate informationally similar material, the user can also readily see whether a fact is a commonly reported one or an unsubstantiated outlier.
5. Source of wealth and other contextually useful background information
Wolfsberg: One of the benefits of NNS is in “identifying potential risks or controversies with respect to a customer’s source of wealth and/or source of funds narrative.” NNS can provide “additional context to support an investigation into potentially suspicious activity.”
smartKYC goes way beyond adverse media because enhanced due diligence requires it. Not only does smartKYC seek to corroborate origin of and journey to wealth from open sources but it also provides other contextually useful information such as lifestyle, hobbies, and upbringing.
The network of a person or individual might also present risk and this is just one example of other added value elements a smartKYC search delivers.
6. Monitoring and alert management
Wolfsberg: NNS can “add value in fighting financial crime” by “forming a key component of a CDD trigger event strategy.”
Many argue, wrongly in our opinion, that perpetual KYC (as it is being called), will make periodic refresh obsolete. The two go hand in hand as there are two reasons why you need to do periodic refresh: either a) because it is time to or b) because you need to (event triggered). These refresh triggers can come from many sources but one of the most important, and arguably the most up to date, is news. Our skills and experience in being able to winnow out noise is critical here.
Clients have deployed smartKYC for periodic refresh today expressly because it delivers only real “deltas” between cycles, i.e., net new pieces of information, not repetition of what you saw and understood previously. And so smartKYC in effect ticks along in the background, doing its job and KYC analysts are only alerted where there is a genuinely new risk that merits attention.
7. KYC in non-English languages and non-Latin scripts
Wolfsberg: “consideration must be given to the screening tools available and the associated language capability. This consideration should include the availability of both input and media source data being in the same native script.”
In defining “transliteration” (searching a subject’s name in its original, non-Latin form) and transcription (applying appropriate transformations), Wolfsberg is acknowledging the importance of multilingual KYC. But these are only useful, of course, if the technology can understand the language of the articles in which the name variant is referenced! smartKYC covers all the major languages an international financial institution will care most about. And there are too many examples of how criminals can fall under the radar because KYC teams are hamstrung by a lack of language skills. But smartKYC ensures clients are as confident conducting KYC in say Portuguese, Arabic and Turkish as they are in English.
Wolfsberg: “FIs should have sufficient media coverage in markets where the FI operates or where the customer base is located.”
smartKYC connects to both public sources of news (e.g., Google, Yandex, Baidu) and news archives (e.g., LexisNexis, Factiva, Nikkei) delivering unparalleled coverage. However, bear in mind that for daily news monitoring for emerging risks, neither search engines nor archives are suitable—there are better resources that smartKYC connects to today that we can share with you.
In conclusion, smartKYC welcomes The Wolfsberg Group’s recommendations and agrees that NNS has a pivotal role in:
· “Informing the risk assessment and classification of the customer or business relationship and determine the extent of ongoing monitoring.”
· “Revealing involvement in criminal activity which may determine the need for additional due diligence and/or targeted reviews of past transactional activity to inform the decision to on- board, maintain or exit a relationship.”
However, we would argue that technology can achieve a great deal more. We encourage awareness of both intrinsic and extrinsic risks where the former includes the usual screening suspects, while the latter includes other considerations—wealth journey, network, sector exposure and country footprint, for example. Just because there are no intrinsic risks associated with a business prospect doesn’t mean there aren’t other sensitivities that should inform the decision about whether to onboard, or at the very least influence monitoring extent and frequency. This is where KYC is elevated from a rear view mirror, tick-box exercise into 24/7, intelligence-led, risk vigilance.
It is only through intelligent automation that banks can have the confidence that their NNS programmes are extensive, accurate and dynamic and that their overall KYC process becomes faster, better and more cost effective.