1

Financial Crime Compliance Roadmap

Standards

Data repositories

Traffic analysis

Quality assurance

Processing services

Sanctions KYC AML

Sanctions list

management service

KYC Registry

Compliance Analytics

Sanctions Testing

(testing / tuning of transaction & client systems) AML testing & tuning

FATF 16 information quality

Client/Name screening

Sanctions Screening Traffic Restriction (RMA)

Live Qualification Exploration

Compliance Analytics

Thomas Preston

Geneva

3/5/15

Financial crime risk has changed

Need to know …. need to know everything, everywhere

Introducing Compliance Analytics

Unique database of transactions

Global view of activity and risk

Focus on the country Mars

What do you want to know ?

• What is my activity ?

• Which of my entities

interact ?

• How does it evolve ?

• Who are my main

counterparties ?

• What is my activity share ?

1. Mars sends

2. To my entities in

3. Flows originate in

4. For beneficiaries in

What are the originating and beneficiary countries ?

What is the value I am receiving from counterparties

in Mars ?

• What is the proportion of

low / high value messages?

• How do these proportions

evolve over time?

• Are there any outliers?

Did I open RMA’s with counterparties in Mars ?

• Up to BIC8 level

• Status of the RMA

• Newly created over time

How do we make it easy for you ?

• Select and filter what you want to see

• Save views and come back to them later

• Download graphs and underlying data

• Consult a list of pre-configured reports

Pre-configured reports provide a shortcut

Key benefits

• Global dataset

• Benchmarking

• Community approach

• No integration

A quick and easy route to comply with sanctions regulations

Sanctions Screening

Sanctions Fines

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Sanction Fines

• Transactions to Sudan (as well as Cuba and Iran) enabled via Data Stripping

(2014) – OFAC –French Bank

• Transaction to Iran and Sudan by replacing the BIC with the name of the bank

(2013) – OFAC – UK Bank

• Lack of verification on name of beneficial owner against EU list

(2013) – Finansinspektionen – Nordic bank

• Data stripping on payments to Iran and Cuba, to hide the origin of the funds

(2012) – OFAC – Dutch Bank

Sanctions Impact

Global review of banking

relationships both on profitability

and on compliance

The pressure to adhere to anti-

money laundering standards,

has resulted ‘in higher

operational costs for trade and

export finance business’ (ICC)

Why is sanctions compliance so complex?

40,000

4 billion +

20% Names and aliases on lists

Correspondent relationship

terminated over the past

year by just one US Bank

Possible fuzzy logic combinations

3,000 New aliases in a single EU

update on 19 July 2011

500 40,000 Names and aliases

on lists

1 day Average interval of

list updates

4 billion + Possible fuzzy logic

combinations

Your institution

Your correspondents

Sanctions Screening – remember what it is?

• Screening engine & user interface

• Sanctions List update service with enhancements

• Minimum/no installation or integration required

• Centrally hosted and operated by SWIFT for SWIFT users

• Real-time

Implementation options

Copy option

Transparent routing of FIN

transactions using FIN-Copy

Few weeks

Zero

Limited

FIN Cat 1, 2, 4, 7

Connector option

Query/response of all transaction

types through API calls

Few Months

Limited

Unlimited

All transaction types

Your institution Your correspondent

1

2

3 Your institution Your correspondent

1 2

3

Scope

Flexibility

Footprint

Timeframe

Transactions

Screened

Granularity

on what is

filtered

Installation

& integration

Time to

compliance

The end-user experience is the same. The technical layer changes.

“We value the ability to use a secure,

automated system that ensures we are

compliant with the most up-to-date sanctions

lists.” Mohamed Isa AL Mutaweh, Chief Executive Officer & Member of the board

of Directors, Al Baraka Islamic Bank

24

Public Sanctions Lists available

Public Sanctions

Lists supported

AU – Australia Department of Foreign

Affairs

and Trade

AU - DFAT Countries Embargoes

AU - DFAT Iran Specified Entities List

CA – Canada Foreign Affairs and

International Trade

CA - FAIT Countries Embargoes

CA - Office of the Superintendent of

Financial Institutions

CA - OSFI - United Nations Act

Sanctions

CN - People's Republic of China -

Ministry of Public Security

EU - EUROPE Countries Embargoes

EU - European Official Journal

EU - Ukraine Restrictive Measures

FR - Journal Officiel français

HK - Hong Kong Monetary Authority

HK - HKMA Countries Embargoes

JP - Ministry of Finance

NL - Frozen Assets List - Dutch

Government

NZ - New Zealand Police

SG - Singapore MAS - Investor Alert List

CH - Switzerland Secrétariat d’Etat à

l’Economie

CH - SECO Countries Embargoes

UK - Her Majesty’s Treasury

UK - HMT Countries Embargoes

UK – HMT Ukraine Restrictive Measures

UN - United Nations

UN - UN Countries Embargoes

US - Office of Foreign Assets Control

SDN list

US - OFAC Palestinian Legislative

Council

US - OFAC Part 561 list

US - OFAC Foreign Sanctions Evaders

US – OFAC Sectoral Sanctions

Identifications

US - Financial Crimes Enforcement

Network

US - OFAC Countries Embargoes

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Private Lists Good Guys List

Single entries and bulk capability

Sanctions Screening- Additional Lists

Data Enhancements

• List from regulator needs to be enhanced and

repaired

• 28 different ways of spelling Mohamed

• List repairs:

– DFAT000527 : ASSAD AHMAD BARAKAT

• City Name (FOX DO IGUACO) corrected to:

FOZ DO IGUAÇU

– OFAC004632 : BANK MARKAZI JOMHOURI

ISLAMI IRAN

• No BIC Code : added BMJIIRTH

Screening and Audit Report

Screening

Transactions

Downloading

Reports

Screening Report

Audit Report: Full Audit Trail

Evaluating

Results

True Hit

False Positive

Benefits

• Minimal (if any)

implementation

• Simple to use

• Cost efficient

• Compliance

eace of mind

Sanctions Testing

Thomas Preston

Geneva

3/5/15

In a world of unprecedented complexity and change:

• How can I be sure my screening solution protects my institution?

• How can I demonstrate to regulators that I understand my solution

and how it mitigates risks?

• How can I make my screening solution more effective – and more

efficient?

Banks face a sanctions compliance challenge

Sanctions Testing – 2015 – Confidentiality: Public

Effectiveness

• Provide assurance that your filter works

• Measure system’s fuzzy

matching performance

• Assess coverage of sanctions lists

• Align screening system to your

risk appetite

Efficiency

• Reduce false positives

through iterative testing

• Build optimisation tests into

your processes

• Understand parameter changes

• Manage and tune rules and “good-guy” lists

Testing Meeting regulatory demands

Tuning Managing cost and resources

Sanctions compliance – balancing priorities

with

Sanctions Testing – 2015 – Confidentiality: Public

Introducing

Sanctions Testing

from SWIFT

Sanctions Testing – 2015 – Confidentiality: Public

Formats

Settings

Lists

Automate • Repeat • Compare • Monitor

Sanctions Testing process

Define

test objective

Download

test files

Process

test files

Upload

hit results

View

test results

Sanctions Testing – 2015 – Confidentiality: Public

Common issues identified through testing

• Outdated lists

• Missing entry types

• Missing entries

• Language variants not screened correctly

• Deleted records still screened

Sanctions Lists

Quality

• List scope incorrect or not aligned with bank policy

• Inconsistent implementation across filters

• Entity and alias types screened unnecessarily

Screening

Policy

• Inconsistent screening performance across message types

• Message or file elements not screened properly

• Overreliance on specific fields (e.g. address or country)

Message

Types

• Poor fuzzy matching performance

• Line break, word order, sequences

• Poor performance against particular entries (short or long names, aliases)

• Character set matching issues

Filter

Weakness

Sanctions Testing – 2015 – Confidentiality: Public

The Assessment Portfolio

Scope &

Purpose

Tests

Deliverables

Audit Assessment Evaluation Assessment

Verification of filter performance

for internal audit, model

validation or in preparation for a

regulatory examination

Demonstrate that the filter aligns

to bank policy

Formal report

Filter environment discovery and

understanding to support

strategic decision making –

upgrades, tuning etc

Identify areas for effectiveness

and efficiency improvements

Findings and recommendations

Sanctions Testing – 2015 – Confidentiality: Public

Peer Assessment Reports

Exact Match

How does

my filter

compare?

Peer Upper Range

Peer Lower Range

Fuzzy Performance

Institution

Comprehensive

•Standard report and assessment approach

•Multiple peer performance dimensions

Helps you understand

•Relative performance

•Policy and technical implementation

•Risk appetite

SWIFT community

•Developed by and created for the SWIFT community

• Industry best practice

•Contribution basis

Am I in the

safe-zone?

Sanctions Testing – 2015 – Confidentiality: Public

Sanctions Testing

STANDARD Sanctions Testing

ENTERPRISE

Sanctions Testing portfolio

• Testing

• Defined tests

• 2 sanctions filters

• Monthly / quarterly tests

• Analyst tools & reporting

• Testing & Tuning

• Custom tests

• Group license

• Unlimited use

• Analyst tools & reporting

Functions

Flexibility

Scope

Frequency

Application

Sanctions Testing – 2014 –

Confidentiality: Public

PowerPoint Toolkit – 23 October 2008 – Confidentiality: restricted

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Customer cases

Top Global Bank Improved response to regulatory pressure

Ch

alle

ng

es

Top global bank under regulatory pressure to improve compliance processes

Growing analytics team with limited internal sanctions testing capabilities

High volume payments and customer screening environments Increasing operational costs of investigations – needed evidence to back system efficiency improvements

So

lutio

n

Independent testing and assurance of payment filtering and customer screening environments

Automated validation of sanctions lists – moving from a manual, sample based validation approach to an automated, comprehensive, solution

Fuzzy analysis and characterisation of payment and customer filters

Be

ne

fits

Independent in-house testing function – capable of assessing impact and changes of filter optimisation strategies

Deeper insight and understanding of sanctions screening algorithms – improved response to regulators demand for model validation

Repurposed head count and improved quality for repetitive list validation processes

Top European Financial Institution Automation of Sanctions Testing

Ch

alle

ng

es

Top European bank looking to increase quality and reduce time and costs associated with sanctions testing

Internal technology barriers to overcome – sanctions testing was slow, complex and dependent on IT support

Dependent on costly external consultants to perform quarterly sanctions tests – with restricted scope and across limited lists.

So

lutio

n

Automated filter testing on every list change – to assess impact of sanctions changes and ensure compliance

Reduced dependency on technology team – automation allows a business consultant to complete a test at the touch of a button

Improved tracking and insight of sanctions list changes – through sanctions alerts, search and comparison

Be

ne

fits

Reduced cost and dependency on external consultants – in-housed the sanctions testing and assurance function

Continuous sanctions assurance through automation and re-testing on list change – rather than quarterly point-in-time tests

Better and more comprehensive testing – reduced time and effort allowed broader and more detailed testing of more lists

Top European Financial Institution Evidence to streamline technology and operations

Ch

alle

ng

es

Operating with multiple different vendor filters across multiple geographies and sanctions jurisdictions

No centralised screening function creating inconsistencies in compliance processes

Needed standard independent measurement approach to assess filter performance and to allow objective comparison

So

lutio

n

Objective filter performance comparison provided insight into filter operation and benefits

Comprehensive suite of sanctions tests tailored for each jurisdiction allowed local understanding of screening issues

Business risk appetite quantified as part of testing provided transparency and better alignment to business policy

Be

ne

fits

Definitive justification for centralization leading to operations and technology savings

Improved global consistency of implementation compliance policy

Implemented short term fixes before roll-out of a wider programme

Revalidation of outcomes through ongoing sanctions testing and as part of regulatory response