Riding through the sanctions storm with AI

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Compliance professionals have surely had a very stressful year in 2022 with the extra burden of transaction screening work, amid a 95% jump in sanctions list updates due to the Russia-Ukraine war.

This regulatory pressure is not expected to fade away in 2023 with new sanctions packages being approved and sanctions evasion set to become a crime in the EU as the bloc continues to seek ways to punish Russia over its war in Ukraine.

Real-time sanctions screening is a regulatory requirement and a major point of friction in the world of instant payments. Fintechs, whose mission is to deliver a better customer experience, speed, and reduce friction, are discovering that sanctions screening quickly turns into a bottleneck for their fast-growing business.

The increasing complexity of screening

The complexity of sanctions screening is not only caused by the volume or frequency of the updates of different uncoordinated regulatory bodies. It is also the story of the surgical precision required while matching a variety of imperfect and unstructured payment data against sanctions lists. Regulators expect more than perfect/exact matches, increasing expectations each year for sanctions screening frameworks. As a result, screening software is relied on to analyze misspellings, different alphabets, transliterations, and, more recently, geographical challenges to effectively match real-time transactions.

Recent fines leveraged against fintechs highlight an urgent need to ramp up their sanctions screening game.

Choose your perfect match

Choosing a sanctions screening solution in this stormy journey is key. Surprisingly, there are not so many screening solutions providers with good technology tailored to fintech needs that provide good value for money as well as company culture fit.

Legacy systems trigger large volumes of false positive alerts, often more than 95%. While balancing risk and cost, the goal is to cover all possible risks. However, fintech will incur high costs with the need to review false hits that could be like 297/300, all while slowing down business. In addition, incumbent legacy providers often do not have customer-centricity in their DNA while having prohibitive prices adapted to the compliance budgets in the banking sector.

Those drivers make fintech consider a more sophisticated, cloud-native AI-based technology that is better equipped to overcome challenges for both sanctions screening and transaction monitoring. Rule-based solutions are no longer a good option for sanctions risk protection or for fintech pockets.

Here are the key factors to take into consideration while choosing a screening solution:

1. Speed and infinite scalability

The hectic rhythm of real-time transaction screening requires a smart architectural fit and unrivaled performance. Your tool should adapt to your scaling business in the same way it adapts to the changing sanctions risks and regulatory requirements.

An AI-based solution with machine learning algorithms in the screening engine delivers extreme precision and speed in the process. It also filters out the noise that triggers false alerts. In this way, AI can replace the time-consuming work of investigators to spot true alerts and focus on real risks.

2. Magic three “E”: efficient, effective, explainable

AI enables FIs to cover the risk of missing out (effectiveness), and to decrease the costs and operational burden of false positives to be manually reviewed (efficiency) while being able to explain to the regulators, auditors, and management the logic with a glass-box approach. At the end of the day, AI is there to help to make better, faster, and data-driven decisions. The compliance teams embrace the ownership of the tool that is there to serve their requirements and risk-based approach.

3. Good fit for your needs

The implementation project and the ongoing relationship rely on trust, prompt response, and continuous adaptation to your needs. During the implementation and new feature releases, the quick speed to value is very important. You should be sure to find a trusted partner who understands you, your business, and the new challenges you face. Your screening partner should be a problem solver having the customer experience at the heart of their business, just like you.

4. Being part of the future

The silos are still a very important part of the problem in the fight against financial crime. A single solution combining AI-powered transaction screening and transaction monitoring gives you a holistic view and operational agility. All information is accessible at one point, eliminating the need to jump from one platform to another and providing additional insights and an enhanced safety net for your institution.

In sum, the use of an AI-powered, single cutting-edge solution will allow you to stay on top and focus on your business.


By Dominika Strzyz García, CAMS

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