Leveraging ISO 20022 to Improve Sanctions Screening in
Financial Institutions
Historically, much of the data linked to payments has been
underutilized or entirely neglected, primarily because processing systems were
not designed to extract and operationalize this data. This inefficiency has
placed significant strain on Anti-Money Laundering (AML) and sanctions
screening processes.
Can ISO 20022 Address the Limitations?
Sanctions screening is a critical control mechanism used to
detect, prevent, and disrupt financial crime, particularly related to sanctions
risk. The process involves comparing one string of text against another to
identify similarities that could indicate a potential match. This screening
compares data from an FI’s operations, such as customer and transactional
records, against lists of names and other indicators of sanctioned entities or
locations.
These sanctioned entity lists are typically sourced from
regulatory authorities and are often supplied, updated, and maintained by
external vendors. These vendors specialize in amalgamating, enhancing,
formatting, and delivering the lists in a way that is usable for sanctions
screening.
Key Screening Controls in Financial Institutions:
Transaction and Customer Screening
Financial Institutions (FIs) employ two primary screening
controls to achieve compliance and mitigate risks: Transaction Screening and
Customer Screening.
1. Transaction Screening
Transaction screening involves monitoring the movement of
value within an FI's records, such as funds, goods, or assets, between parties
or accounts. To mitigate risks associated with trade finance transactions and
international wire transfers, FIs perform real-time screening of cross-border
transactions against Sanctions Lists. This process is crucial when any of the
involved banks—Sending Bank, Originating Bank, Receiving Bank, Intermediary
Bank, or Beneficiary Bank—are located in different countries.
2. Customer or Name Screening
Customer or Name Screening entails checking the full legal
name and any other name provided by the customer, including known aliases,
against relevant official sanctions lists. While generating an alert through
this screening process is not necessarily an indication of sanctions risk, it
is the initial step toward identifying potential exposure, which can be
confirmed or dismissed with further investigation.
Understanding the Complexity of Screening
Screening may seem straightforward, but determining a “true
match” across various variables—such as alphabets, names, addresses, spelling,
abbreviations, acronyms, and aliases—can become highly complex. Certain data
elements, like transaction amounts, dates, and reference numbers, offer minimal
risk mitigation and are not usually relevant for screening purposes.
Common Transactional Attributes for Screening
FIs commonly screen several key attributes in transactions,
including:
- Parties Involved: The remitter and beneficiary in a transaction.
- Agents and Intermediaries: Including other FIs involved in the transaction.
- Vessels: International Maritime Organisation (IMO) numbers, typically relevant in Trade Finance transactions.
- Bank Information: Bank names, Bank Identifier Code (BIC), and other routing codes.
- Free Text Fields: Payment reference information or the stated purpose of payment in Field 70 of a SWIFT message.
- Product Identifiers: International Securities Identification Numbers (ISINs) or other risk-relevant identifiers, particularly in securities-related transactions.
- Trade Finance Documentation: Includes details of the importer, exporter, manufacturer, drawee, drawer, notify party, and signatories, as well as shipping companies, freight forwarders, facilitators like insurance companies, agents, brokers, and FIs such as Issuing, Advising, Confirming, Negotiating, Claiming, Collecting, Reimbursing, and Guarantor Banks.
- Geographical
Data: A wide range of addresses, countries, cities, towns, regions,
ports, and airports are screened, particularly within SWIFT Fields 50 and
59, and places related to the transport of goods (e.g., Place of Taking in
Charge, Place of Receipt, Place of Dispatch, Place of Delivery, Place of
Final Destination, Country of Origin, Country of Destination, and Airport
of Departure/Destination).
