The cost of noncompliance is far higher than investing in an AML compliance program. If a firm or financial institution establishes a business relationship with an individual or group of entities, the firm may face millions of dollars in fines and reputational damage as well.
There are higher chances that such people will try to exploit your business platform for their gains such as money laundering and other financial crimes.
Is there any way businesses can deal with such individuals even before onboarding them?
Though the regulatory bodies have set compliance measures for financial institutions, with a watchlist compliance program, businesses can easily avoid making relationships with people listed on the Global watchlist.
In this piece of writing, we will try to cover the basics of Watchlist compliance, its importance, and why Businesses must opt for a better compliance program.
Does Watchlist compliance matter?
The measures financial institutions and other firms opt for are where they screen the individual and group of individuals against the designated list that identifies known or suspected criminals, terrorists, and other risk people.
Why is the screening against such individuals and organizations necessary?
The international regulatory bodies often add people with criminal backgrounds such as money laundering, terrorist financing, corruption, and other higher-risk crimes to the list. The list includes politically exposed persons, terrorist watchlists, and others.
That is why onboarding or making any business relations with such entities is prohibited as per AML rules and regulations.
To avoid onboarding them, businesses need to screen such entities against global watchlists, sanctioned lists and PEP lists. Failures can cause businesses to pay millions of dollars in fines and face reputational damage.
Why Digital Watchlist Screening is important for business in the fight against Financial Crime?
Staying updated with the compliance program is not a choice for financial institutions, but it’s an essential tool in the fight against money laundering and other financial crimes. Here are the top reasons why a watchlist screening solution could be beneficial for financial institutions.
Risk Mitigation
Knowing what type of risk each individual may pose to your organization is very important. The watchlist compliance program in organizations reduces the risk of financial crimes and ultimately protects your business from financial crimes.
Regulatory Requirements
Every sort of financial organization is obliged to follow the AML regulation including the digital watchlist screening while onboarding new clients. The regulations include the local and international regulations set by FATF, OFAC EU AMLD, and other international bodies. In any case, businesses that fail to comply can face millions of dollars in fines.
Reputation Management
The higher the reputation any organization has, there are higher the chances of interacting with potential clients and business partners. Therefore, maintaining a strong compliance framework helps build trust with customers, investors, and even regulatory bodies.
Essential Components of an Effective Watchlist Compliance Program
An effective watchlist compliance program must include the following components
- Screening Procedures: screening against the watchlist isn’t a one-time task, businesses need to screen their customers against relevant watchlists regularly to stay ahead of the criminal activities. This process should be automated when possible to enhance efficiency and accuracy.
- Due Diligence: one of the most important components of watchlist compliance is knowing who your customers are. Make sure he is not added to the global watchlists. For this, businesses need to conduct thorough background checks to understand the nature of customer relationships and assess the associated risks. These checks include verifying the customer’s identity and the level of risk he can pose shortly.
- Ongoing Monitoring: criminals do not wait for any specific time, they find the time that could be best for exploiting the business platform to commit the crimes. Therefore, regular and ongoing watchlist monitoring of each customer’s transactions is a must to identify suspicious transactions that could lead to money laundering and other financial crimes. This ensures that businesses remain compliant even as circumstances evolve.
3 Steps to Implementing a Watchlist Program
For businesses looking to enhance their watchlist compliance efforts, consider the following actionable steps:
- Conduct a Risk Assessment
The strong internal AML regulations are very crucial in the fight against financial crimes. Therefore businesses need to Identify areas of concern within their organization and assess the potential risks associated with customers and transactions.
- Develop Screening Procedures
The second most important step in implementing the compliance program is the incorporation of comprehensive screening procedures and policies that align with the global watchlist compliance program.
- Train Employees
Many organizations often neglect this component because of the time and money investment. But keeping your compliance team updated about the latest regulations and compliance challenges is more important than any other thing. Therefore, businesses invest in providing training to their employees on compliance protocols and best practices to ensure that everyone understands their roles and responsibilities.
Provide training for employees on compliance protocols and best practices to ensure that everyone understands their roles and responsibilities.
Stay ahead of criminals with AML Watcher’s advanced watchlist monitoring services that comes with zero false positive rates and reduces your compliance cost by almost half.
