11 February 2016

Sanctions screening costs doubling every four years - Swift

27 November 2012  |  9944 views  |  1 STOP

The operational costs of sanctions compliance to financial services firms is doubling every four years, according to data compiled by interbank co-operative Swift.

Financial institutions are increasingly seen as the front line in the fight against money laundering and terrorist financing.

Sanctions lists themselves are not particularly large, says Swift, amounting to about 40,000 distinct names and synonyms. However, when you apply possible fuzzy matching to searches (to account for potential misspellings, phonetic similarities etc) this generates an equivalent of 4,000,000,000,000 possible names that filters must screen.

"Swift data reveals the growth in number of transactions worldwide," says the financial messaging utility in a white paper on the subject. "By correlating that with the rising number of watchlists, we estimate that the cost of sanctions compliance at financial institutions will double every four years."

Swift introduced its own sanctions testing tool in October.

Nicolas Stuckens, manager, AML & sanctions initiatives, Swift, comments: "Sanctions lists evolve daily and the number of transactions that need to be screened is rising rapidly. Banks are expected to keep up and tune their sanctions filter in line with their risk appetite, so it has never been more important that systems and processes are effective and efficient."

Comments: (1)

Tony Tarquini - Pegasystems - Reading | 29 November, 2012, 14:56

Banks use sanction lists to screen against individuals, companies, governments and other groups including terrorists using SWIFT for
financial transactions. SWIFT is right - these lists are getting ever more
complex and larger as they take account of constantly evolving sanction
policies, criminal money laundering behaviour and the need to account for all potential misspelling and other variations.

However, it is very far from being the case that as sanctions increase, so operational costs HAVE TO increase.

Banks can do much more to mitigate against increased operational costs: Whether they like it or not, sanctions screening is going to remain a feature of international banking. Indeed the blizzard of checks is going to intensify, and become much more complicated to check against. While the work is essential, clearly these are operational pressures that banks must alleviate if at all possible. 

The reason banks can do more to mitigate the operational
costs is because too often they allow sanction screening to include too much manual intervention that could be automated. Also, embracing a rules-based approach to designing sanctions screening systems can enable banks to adapt to changes in sanction regimes in a much more agile and cost effective way. If the rules are designed for maximum reuse (by stacking the rules – generic at the bottom and becoming more situationally specific towards the top) maintenance is significantly streamlined and costs reduced.

As a result, the banks who already lead the way in this
area by implementing these types of compliance strategies are playing a much more effective part in enforcing the rules critical to the fights against crime and terror, without it becoming an uncontrollable monster.

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