The so-called Wild West of the crypto market is coming to an end. Recently, the European Union finalized MiCA, a new crypto regulation that aligns with the EU’s anti-money laundering directive. Many countries around the world are also introducing regulatory requirements for digital assets, such as cryptocurrencies.
The new KYC regulations require crypto exchanges and other businesses to implement full-fledged KYC and AML procedures, establish an in-house compliance department, and ensure effective privacy and security checks. Companies that fail to comply risk losing their operating licenses and paying large fines.
However, penalties aren’t the only reason to implement KYC procedures; they can also provide important benefits for business continuity. Continue reading to find out why KYC is essential for the cryptocurrency industry.
What Is Adverse Media Screening?
Adverse media screening, also known as media monitoring or negative news screening, involves looking for negative news about a natural or legal person. This check is becoming increasingly significant in the customer due diligence (CDD) process, which is an essential aspect of KYC, KYB, and AML procedures.
Adverse media can come from a variety of different sources. Adverse media might originate from a multitude of sources. Traditional media, such as newspapers and magazines (both print and online), as well as television and radio, are the most common sources. Negative media, on the other hand, can emerge from a variety of sources. Online blogs and social media platforms, for example, include plenty of essential information.
Why Is Adverse Media Screening Important?
Adverse media screening is one of the most important components of a strong AML strategy required by regulators. A check can determine your client’s or business partner’s reputation and the risk they may pose.
The media propose the fastest way to acquire information about criminal allegations. Law enforcement and journalists conduct investigations to determine the criminal activities of individuals and organizations, concluding their findings with press releases or news articles. That is why, before beginning a relationship with a new client, you should perform an adverse media check to determine whether they are involved in money laundering, terror funding, financial fraud, or other criminal behavior.
Since most regulators demand a risk-based approach to compliance, adverse media screening can aid in determining a client’s risk score. If a check yields no findings, the client should be assigned a low-risk score. However, if a bad news piece surfaces, a client should be flagged as high-risk. In this instance, an obligated organization should either initiate an enhanced due diligence process or completely cut ties with the individual.
It is apparent that negative media screening can be beneficial to any organization that wants to know who they can trust. However, regulated industries, such as financial organizations, are obliged to perform these checks routinely.
While negative media screening may be useful to any company that wants to know who they can trust, screening is a must for regulated industries. Failing to establish a client’s risk factors correctly may have legal repercussions. On average, financial institutions spend $14.82 million annually on AML violations. While penalties bring a staggering financial loss, institutions also pay with diminished reputation, often leading to lost clients.
The Most Common Negative Media Challenges
Like any other AML-related process, adverse media screening doesn’t come without challenges. Due to its complexity, many regulated organizations struggle to make the screening efficient.
These are the most common pitfalls of adverse media screening:
- Long list of media sources
- Evaluation of Credibility
- Nonspecific regulatory requirements
A large variety of news sources need to be checked for the most reliable and accurate information. From press releases published by law enforcement agencies to daily news sites – the number of relevant sources can be overwhelming.
A large number of media channels poses another challenge – assessing credibility. Ensuring that a source is credible and doesn’t include fake news adds more weight to an already heavily tasked process.
While adverse media is compulsory in many regulatory environments, such as the European Union, it is not well specified. The lack of requirements leaves obligated industries puzzled about how to implement the screening correctly and ensure its effectiveness.
Why Should You Automate Adverse Media Screening?
In the digital age, manual data gathering and analysis is simply ineffective. Organizations that still analyze adverse media by hand are losing many resources that can be saved by adopting automation.
Compliance solutions that include adverse media screening, such as Ondato, can reduce the time and expense required to assess a client’s reputation. It does so by allowing you to choose the screening criteria and validating credible sources, ensuring that the process complies with regulations.
Every day, Ondato’s adverse media screening tool checks approximately 6.5 million news articles. It delivers accurate, trustworthy, and up-to-date information. The tool can immediately notify you about changes in your customer’s reputation status and recalculate the risk score on your behalf. Learn more about Ondato here.