The media is crucial in keeping tabs on influential institutions and spotting any actions that are detrimental to the general welfare. There is increasing pressure on businesses in every sphere to improve their environmental, social, and governmental (ESG) activities.
Therefore, to avoid clients with a bad reputation, overcome the lack of ESG data from non-reporting enterprises and find the pertinent information in the annual reports of this vast universe, adverse media checks are essential.
This article discusses all aspects of adverse media and the best ways to carry out adverse media checks.
Defining Adverse Media
Unfavorable information concerning a business can be found in various sources of reference and is frequently referred to as bad news or adverse media. It includes reports made public by news organisations and other media about a company on convictions or participation in financial, social, moral crimes, or other illicit activities.
Negative media searches on any client that turn up with sanctions, politically exposed persons (PEPs), special interest individuals (SIPs), or anything else that could put the stability of a company’s finances in danger come under adverse media.
Adverse Media Checks
The term “Adverse Media Check” refers to the process of checking customers or companies to make sure they have not been exposed to anything unfavorable or problematic in different news outlets or social media.
The screening checks for involvement in criminal or terrorist activity, as well as a wide range of potential onboarding issues with a person or company. To ensure that a business is Anti-Money Laundering (AML) compliant and that it has done its due diligence, adverse media screening is essential.
Constituents of Adverse Media Screening
- Funding terrorist organizations
- History of financial crimes
- Involvement in drug distribution
- Human trafficking
- Cybercrime and fraud
- Ultimate Beneficial Owner (UBO)
- Violence or sexual offenses
Adverse Media Sources
Different adverse media sources have become widely used over the past decade.
Digital sources today encompass social media, video-sharing platforms, online forums, databases maintained by regulatory bodies like the Financial Action Task Force (FATF), and other online blogs or websites complementing traditional news sources like national newspapers and television news programs.
How is Adverse Media Check Performed?
An exhaustive procedure of looking for the name and address of a potential client in public records (such as newspaper archives, databases, and unstructured sources) constitutes an adverse media search.
Automated Compliance Technologies
Automated compliance solutions enable firms to quickly sift through the vast amount of information currently available and notify them of important changes or red flags regarding a person or business. Utilizing software to monitor negative media can boost a company’s ability to screen consumers in accordance with their company’s risk appetite and help concentrate on the most pertinent signals.
If there is a match with a potential consumer, a more thorough manual analysis follows.
Benefits of Adverse Media Checks
Due Diligence: The identification of high-risk clients—those who might have ties to criminal activity—requires the execution of adverse media checks as part of enhanced Customer Due Diligence (CDD).
Reputation and Safety: These tests contribute toward risk assessment, assisting in determining whether the client poses a liability and whether they might jeopardize the reputation and safety of a company.
Containing Crime: Adverse media checks help identify serious offenders who might otherwise exploit an unprotected opportunity.
Drawbacks/Challenges of Adverse Media
Diversity: With numerous information sources at hand, the amount of data to be searched and analyzed can be daunting. It is challenging to separate significant news from the trivial.
Reliability: Press releases and notices issued by tax authorities, police enforcement agencies, and other governmental organizations contain risk information that is seldom accessible through free internet news searches. It is difficult to determine whether the sources are reliable in their reports.
Multiple Approaches and Regulations: Based on national legislation, industry, regulations, and other considerations, adverse media classifications, and risk screening criteria might differ between nations and organizations.
Adverse Media-based Regulations
The FATF recommends organizations adopt a risk-based compliance approach to target their resources more effectively and apply preventive measures that are commensurate with the nature of risk.
As part of the CDD procedure, the Financial Crimes Enforcement Network (FinCEN) of the US mandates that obliged financial institutions do an adverse media screening.
The Financial Conduct Authority (FCA) in the UK emphasized the relevance of thorough adverse media checks and reinforced the importance of following up on financial crime allegations against clients in an open letter to financial institutions in May 2021.
What is AML’s media screening procedure?
The AML screening procedure is used by banks and other financial institutions for accessing the global watchlist to scan the names of potential clients against sanctions lists, PEP lists, and negative media screening.
How can banks recognize UBOs?
1. Obtain the credentials of the organization. 2. Examine the chain of ownership. 3. Determine which of each person’s ownership stakes, managerial control, and total shareholdings meet the criteria for UBO. 4. Conduct a KYC and/or AML check.
How does Adverse Media affect the risk rating of clients?
When checking the client or company for bad press, risks that are not noticed during KYC and CDD are frequently found. A client’s risk rating is determined by negative media, which might result in the submission of a Suspicious Activity Report (SAR).