The Wolfsberg Group, an association of thirteen global banks which develops frameworks and guidance for the management of financial crime risks, particularly with respect to KYC, AML, and CFT policies, recently released a set of frequently asked questions on negative news screening and other forms of adverse information searches.

Negative news screening can assist financial institutions in performing customer due diligence, as well as evaluating transactions or activities that are unusual or potentially suspicious.   The Financial Action Task Force (FATF), an inter-governmental money laundering and terrorist financing watchdog, recommends that banks, as part of a risk-based approach, include verifiable adverse media searches as part of enhanced due diligence measures.^[1]  Similarly, while the Bank Secrecy Act does not require negative news screening, U.S. regulators have encouraged banks, as appropriate, to consider negative news.^[2]  The FFIEC BSA/AML Manual, for example, notes that banks should “establish policies and procedures for determining whether and/or when, on the basis of risk, obtaining and reviewing additional customer information, for example through negative media search programs, would be appropriate.”  The Manual continues that the results of negative news screening can help a bank determine when it is appropriate to review a customer relationship.

Recognizing that there is no single, universally agreed approach to negative news screening, the Wolfsberg Group developed its recent guidance to help financial institutions manage their financial crime risks.  The guidance is separate from politically exposed persons or sanctions screening, both of which are traditionally list-based.  For the purposes of the guidance, the Wolfsberg Group defined “negative news” as “‘information available in the public domain which FIs [financial institutions] would consider relevant to the management of Financial Crime risk.”

Importance of Credible and Relevant Sources

The guidance notes that the value that a bank is able to extract from negative news screening is “correlated to the availability of information and the credibility of the media source in the public domain.”  The guidance recommends that a bank may want to establish specific media sources, considering the credibility of the source and the coverage of adverse information within a specific geographical area: “The credibility of the media source will be a key factor in determining whether it should be used in [negative news screening]. For example, factors such as the completeness, accuracy and coverage of the source should be considered.”  The guidance suggests that banks consider conducting an assessment on the sources used in its negative news screening – if the bank uses an external party or vendor to provide the media sources, “it is recommended that the [bank] 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.”  The guidance provides a detailed list of what the Wolfsberg Group views as characteristics of reputable sources, including media type, content (e.g., material subject to editorial oversight versus social media), and geographical context (e.g., publications considered as politically neutral).

Similarly, a bank should ensure that negative news is relevant to financial crime – speeding fines and public disorder offenses, for example, would not be relevant for assessing financial crime risk. 

You’ve Identified Negative News – Now What?

The Guidance recommends that banks have in place a framework to investigate negative news results in a timely and consistent manner.  For example, a bank may choose to have a tier-based investigation approach: “e.g., an initial operational level undertaking high volumes of alert investigations against an agreed set of matching/discounting rules and procedures. Subsequent levels may be utilised where alerts cannot be discounted, or positive matches are identified, and due to the subjective nature of [negative news screening] outputs, require specialist subject matter expertise and input.”

As FinCEN and other federal regulators noted in 2021 guidance, a financial institution is not required to file a suspicious action report based solely on negative news.  Rather, “[a]s with other identified unusual or potentially suspicious activity, financial institutions should comply with applicable regulatory requirements and follow their established policies, procedures, and processes to determine the extent to which it investigates and evaluates negative news, in conjunction with its review of transactions occurring by, at, or through the institution, to determine if a SAR filing is required.”

FOOTNOTES

[1] See FATF, Guidance for a Risk-Based Approach: The Banking Sector (Oct. 2014).

[2] See FinCEN, Answers to Frequently Asked Questions Regarding Suspicious Activity Reporting and Other Anti-Money Laundering Considerations (Jan. 19, 2021) (“[CDD] regulations … do not categorically require the performance of media searches or particular screenings.  However, in certain circumstances, a financial institution might assess, on the basis of risk, that a customer presents a higher risk profile and, accordingly, collect more information (such as media searches) to better understand the customer relationship. Such information also assists a financial institution in determining when transactions are potentially suspicious.”); FinCEN, Frequently Asked Questions Regarding Customer Due Diligence (CDD) Requirements for Covered Financial Institutions (Aug. 3, 2020) (“The CDD Rule does not categorically require … the performance of media searches or particular screenings.”).