Switching Sanctions Screening Software: Pain or Gain?

Switching Sanctions Screening Software: Pain or Gain?

Sanction screening is an essential element of the Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) framework. The UAE’s AML/CFT regulatory framework mandates regulated entities to undertake sanction screening processes to effectively detect sanctioned individuals and entities and adopt mitigating measures for them.

The regulated entities are free to determine whether they want to conduct sanctions screening manually or use screening software. If an entity is performing name screening manually and then it decides to switch to name screening software, it is not that easy. The same is true for an entity trying to switch from one sanctions screening software to another.

Manual sanctions screening processes are inefficient and time-consuming. Further, screening against the outdated sanctions list increases the risk of money laundering, financing terrorism, and proliferation financing (ML/FT and PF). Since everything is manual, one has to keep a constant eye on changes in the sanctions list, which is virtually impossible.

The regulated entities are required to maintain AML/CFT records for a minimum of 5 years. With manual screening, it is difficult to meet this requirement. This necessitates a switch to sanctions screening software.

Constantly changing regulatory requirements, business expansion, and inefficient sanctions screening software necessitate a switch from one sanctions screening software to another.

The regulated entities also decide to switch from one name-screening software to another when the vendor fails to provide the required support or features. A change in front office solution also necessitates API-based support for sanctions screening, and not all software vendors carry that API-based support. However, change is always painful, and so is the case with a change in the sanctions screening software.

Pain Points in Sanctions Screening Software Switches

Here’s a list of key pain points associated with the switch from manual processes to sanctions screening software and a change from one screening software to another:

Data Migration:

Migrating existing data from manual records to screening software is a time-consuming task. The same is the case with migrating data from one screening software to another. It requires careful planning, data cleansing, and validation to ensure accuracy and compliance.

Integration with Other Systems:

Integrating new sanction screening software with other systems, such as customer relationship management and other AML software, can disrupt workflows and require adjustments to the overall AML framework.  

Configuration:

Configuring sanction screening software to business requirements needs time investment and a thorough understanding of the system’s capabilities. Which might not be available to regulated entities.

Training:

Implementing new sanction screening software requires expertise and skill for which regulated entities need to provide training programs to their employees, delaying the AML measure and making it more expensive.

Disruption and Downtime:

Switching to sanction screening software inevitably leads to disruptions in regular operations and potential downtime during the implementation phase

License Cost:

Implementing new sanction screening software requires procurement of licenses from vendors, which puts a significant financial burden on regulated entities.

False Positives/Negatives:

There is a possibility that upgraded software screening software may generate false positives or negatives, potentially impacting the efficiency of operations and compliance effectiveness of regulated entities.

Rigidity:

There could be issues related to scalability. The sanctions screening software may not be capable of scaling in line with business growth, or sometimes it is just too expensive to upscale. A downfall in business may necessitate surrendering of extra licenses and sometimes the licensing policy of the vendor does not allow it.

Vendor Lock-in:

Switching sanction screening software can be challenging for regulated entities as they may have paid upfront for the software usage, and a switch to new software makes those licenses redundant. In some cases, the businesses are required to pay for the software for a minimum of 12 months. This type of vendor lock-in makes it difficult for entities to switch from one software to another.

Customisation:

Regulated entities need to implement sanction screening software that is customised to their need. However, customisation takes time, increases costs, and makes it difficult for regulated entities to switch from one software to another.

Support:

Access to reliable and spontaneous support services for resolving issues and addressing concerns for smooth software can be difficult and may not be available on time, which can hamper the overall sanction screening process.

Gain Points in Sanctions Screening Software Switches

Even though there are various headaches attached to switching sanction screening software, it is still worth it for regulated entities.

Here is the list of the key gain points that make switching to sanction screening software beneficial and necessary for regulated entities aiming to mitigate ML/FT and PF risks:

Accuracy:

Upgrading sanction screening software helps regulated entities achieve the accuracy of identifying potential matches. Switching from one software to another or manual processes to an automated one that uses advanced algorithms and database capabilities ensures more concise results. With such a switch, regulated entities can reduce false positives and enhance their overall effectiveness in risk detection.

Improved AML/CFT Compliance:

Technology keeps getting updated, and so does AML software. Switching to upgraded sanction screening software offers enhanced compliance functionalities that also align with evolving regulatory requirements. Therefore, by switching sanction screening software, regulated entities can enhance their compliance with AML/CFT regulations and reduce compliance risks. Furthermore, regulated entities can reduce the risk of screening against unwanted or outdated information and achieve accuracy in risk management.

Enhanced CDD and EDD:

With global reach and advanced features, switching to upgraded sanctions screening processes, regulated entities in UAE would be better at undertaking effective customer due diligence and enhanced due diligence processes. This includes better identification of sanctioned individuals and entities, segregating them based on the risk attached to each customer, and helping regulated entities adopt appropriate counter-measures, thereby strengthening overall risk management practices.

Efficiency:

Switching to new sanction screening software that has more capabilities and advanced features for data collection, matching, and reporting, regulated entities can optimise the screening process. This streamlines the screening process, saves time and resources, and increases the efficiency of the business.

Global Coverage:

Upgraded sanction screening software provides extensive coverage of global databases and regulatory lists. With such global coverage, regulated entities can identify risks associated with international customers, entities, and transactions, thereby strengthening the business’s risk management framework.

Advanced Features:

The latest sanction screening software offers advanced features such as machine learning algorithms, global databases, and matching techniques. These advanced capabilities improve the ability of regulated entities to detect potential matches and complex patterns, enhancing the accuracy and efficiency of the screening process.

Scalability:

With the growth in the business or any updates in regulatory requirements, upscaling is necessary. A switch to new software, which is scalable to support more users, features, and modules, helps entities meet their compliance objectives. The upscaling or downscaling requirements can result from increased transaction volumes, new markets, and additional compliance demands. The scalability of upgraded software ensures that the regulated entity is adaptable to any change in the business or regulatory landscape.

Better Return on Investment (ROI):

Although there are initial costs associated with switching to new and upgraded sanction screening software, its long-term benefits are often more than the investment. With enhanced efficiency, reduced compliance risks, global coverage, and improved risk mitigation, regulated entities can reduce their overall operational costs, mitigate risks, and safeguard their reputation, thereby having a better ROI.

Enhanced Reporting and Audit Trail:

Modern and upgraded sanction screening software uses technologies that reduce false positives and negatives in sanctions screening. Enhanced reporting features not only save time but also costs associated with compliance. The AML software also maintains a complete audit trail, helping entities face inspections and audits confidently.

Par with Industry Standards:

Switching to upgraded sanction screening software enables regulated entities to adhere to new technology, best capabilities, and standards in AML/CFT compliance. This not only ensures the credibility of regulated entities in combating ML/FT and PF risk but also allows regulated entities to adopt strategic initiatives.

Security:

Sometimes, a switch from manual processes to automated and one solution to another is necessary from a security standpoint. The new AML software might have better security features to protect client and compliance records.

Integration for API Support:

The legacy system may not have the API support to facilitate integration with the point of sale or back-office systems. A switch to a new AML software helps integrate various modules like sanctions screening, KYC, customer risk assessment, case management, and transaction monitoring with the front and back-office systems.

Better Vendor Support:

Sometimes, a switch to new AML software is necessary for the poor support provided by the existing vendor. A new vendor might provide better support services.

Customer Experience:

Erstwhile manual or legacy systems may cause delays in processing customer information from a compliance standpoint. A new AML software can provide self-service features, providing a lot of ease in doing business.

Conclusion

Therefore, even though switching to sanction screening software has many pains associated with it, regulated entities can gain effectiveness in mitigating the ML/FT risks while enhancing operational efficiency and regulatory compliance by switching it.