KEY CHALLENGES
Included within the scope of a recent customer screening assurance review for a client was testing the approach to PEPs.
The client wanted confirmation that the PEP screening was working as designed and had raised concerns about the high level of false-positive alerts that were being generated by the system.
SQA PROPOSED SOLUTION
SQA Consulting provides Screening Assurance reviews as standard to multiple banks worldwide on an ongoing basis. Our in-house tool the Screening Assessment Centre is designed to enable our consultants to perform in-depth analysis of any screening system and provide comprehensive results indicating how well the system performs relative to other peer banks and FI’s. It provides a measure of the effectiveness and the efficiency of the systems indicating how well tuned the system is relative to the level of false positives generated.
In this specific case, test records were generated including both Sanctions and PEPs related test scenarios for processing on the client customer screening system. One test scenario for PEPs included assessing PEP categories in-scope for screening – sample PEPs from each of the client’s in-scope categories were included in the test file such as heads of state, heads of government, high-ranking officers in the armed forces, etc.
Very quickly the results indicated that although high-ranking officers in the armed forces were expected to be in scope for matching, they were in fact being excluded. In addition to this observation, it was identified that a type of PEP relevant only to certain countries were being included for screening and that this was adding to the high volume of false positives being generated. These PEPs are additional PEPs identified at national level and are required for identification at a national level, for example, Italy defines PEPs within national legislation as including lower level PEPs such as mayors of metropolitan cities. These mayors of metropolitan cities are not defined within the EU AML Directive definition of being a PEP and as such can be considered out of scope for screening unless of course, you have business operations in Italy in which case a determination will need to be made as the appropriateness to screen those names also. In some cases, these additional names can add up to 90% of PEP names for a country to the PEP list which will have a significant impact on the levels of PEP names in scope for screening which in turn will result in significantly higher levels of false positives.
The recommendation to the Client was to update the configuration to include high ranking officers in scope for screening and to exclude those additional national PEPS.
SOLUTION BENEFITS
Following on from the SQA Screening Assurance review the client updated the screening system configuration to remove the additional national PEPs which resulted in a significant improvement in operational efficiency with a major reduction of false positives. The configuration was also amended to ensure all PEPs in scope for the clients PEPs Policy were correctly in scope for screening.
SQA Consulting can quickly and methodically assess your approach to screening for both PEPs and Sanctions and can identify where your system is performing well and where there is room for improvement. Our detailed observations report provides comprehensive explanations where issues have arisen and will include practical suggestions for making improvements and quick wins. Our best in class benchmark will also highlight how you compare to peer banks for both effectiveness of screening and efficiency rates.
