Know-your-customer and anti-money laundering (KYC/AML) processes at banks are a source of reputational risk. Corrupt elites don’t make themselves easy to catch, obfuscating their identities and hiding their tracks in networks of shell companies. Banks are still largely using manual, paper-based processes for onboarding and customer due diligence, but if scrutiny reveals dodgy individuals on their books, it could lead to negative press and government fines. 

So when Russia invaded Ukraine this year, and governments worldwide updated their sanctions lists to include oligarchs in President Vladimir Putin’s inner circles, vendors that develop anti-financial crime solutions saw increased demand for their tools. Some say they have even increased investment in these products and services, which are aimed at helping financial firms to spot bad actors already on their books or during customer onboarding.

Asad Choudhary, a partner at advisory firm and software provider Plenitude Consulting, says his company has seen increased demand from large European banks, insurance firms, and asset managers since the invasion of Ukraine, and the resulting response from governments. In response, Plenitude has made further investments in products to help these firms screen against individuals, update these screening lists, and ensure that systems are calibrated.

About a year ago, Plenitude built a cloud-based risk rating solution called ClientSight that aims to help users assess the financial crime risk of new clients during the onboarding process. The company also has a solution called RegSight that scans laws and regulations to find compliance gaps. ClientSight was first aimed at accounting firms, but because of the increased demand from the financial industry, Plenitude formally launched the solution last month to a wider market.

“Every institution must assess the risk of newly onboarded customers,” Choudhary says. “ClientSight assesses the risk, and then informs the financial institution of the level of due diligence that it must perform to make sure that it is compliant. And this can be done on a periodic basis.”

New wave

Charles Minutella, global head of customer and third-party risk intelligence at the London Stock Exchange Group, says LSEG saw a 600% increase in the number of searches made on its screening tool and compliance database, World-Check. World-Check, a database of high-risk individuals and politically exposed persons, has about 10,000 customers and was brought into the LSEG fold with the exchange group’s acquisition of Refinitiv.

“We believe this was organizations going in and making sure they were actively monitoring their customers for any changes,” Minutella says. “In addition, there was a significant increase in the records added to the database as a result. In March, we processed 12 times the number of sanctions records we would process in a normal month.”

The group also saw an uptick in the number of users engaging with its client briefings, webinars, and white papers, as the Ukraine war dominated headlines, and clients felt pressure to understand new screening lists and regulations.

Minutella says that since then, new laws and sanctions packages have been rolled out to respond to the situation in Ukraine. The UK, for instance, hurriedly passed the Economic Crime Act in early March. This legislation cracks down on money laundering and oligarchs who own property in the UK, requiring anonymous foreign owners of UK property to identify themselves as beneficial owners. For banks, this kind of legislation represents a reputational risk, as firms holding assets of one of these individuals could find their due diligence and KYC/AML processes under scrutiny.

“The number, the reach, and the depth of these sanctions are far beyond anything that we’ve seen in this space,” Minutella says. “There is a tremendous amount of complexity and ambiguity here because financial institutions have large customer bases and complex ownership structures within their customers. Often their customers and sanctioned customers have similar names.”

Jeff Bell, president of trade surveillance solutions provider Eventus, says the Ukraine conflict has increased interest in financial crime among banking executives generally. “The conflict has caused more discussions; it is a geopolitical event that has caused more boardroom and management committee discussions about how these things are addressed,” he says.

“Suddenly, there’s a bunch of individuals who you have perhaps done business with who are now on a sanctions list. What was OK yesterday is no longer OK today. That creates all sorts of interest around the operational process,” Bell says.

Eventus’s flagship offering Validus works by taking in data on the full order lifecycle from clients. That data is stored in a data warehouse and normalized. The company’s algos scan it for patterns, triggering an alert when problematic behavior is detected.

Bell says Eventus is considering some alterations to its solutions to better equip clients for growing compliance burdens, targeting KYC/AML and transaction monitoring.

“We’ve devoted significant resources to our regulatory affairs team, and we are putting time and effort into AML,” he says.

Same but new

AML solutions provider Nice Actimize, among others, says in contrast it has not seen an increase in demand for products.

“I think the risks firms face are still the same, they’ve just intensified as a result of the conflict,” says Ted Sausen, director of AML at Nice Actimize. “The risks are the same, so we haven’t run out and made any significant changes to our system.”

Nice Actimize launched its Entity Resolution capability last September. At the time, the company said it was addressing a trend: a shift in AML from transactional analysis to customer-centric analysis. The company integrated into its AML solutions technology from Senzing, a provider of entity resolution software, to find entities and relationships and improve the detection of suspicious activity. A few months before that, Nice launched its WL-X solution, which opened the data channels that could be fed into the entity resolution software.

The entity resolution and WL-X solutions are now packaged as one. WL-X also houses a predictive scoring component leveraging Nice’s predictive analytics. The solution is intended to help firms determine if an individual or entity identified by the solution is a genuine risk.

“Legacy solutions were quite limited in terms of how much data they could take in to screen against. We have opened it up to broaden the data feeds, so we’ve taken in multiple lists, multiple datasets. That broadens the context of what you can screen against, so that you are not missing some data points that might exist,” says Adam McLaughlin, Nice Actimize’s director of AML product strategy and marketing.

WL-X has been designed to limit the number of risk alerts that an end user might get by, for example, merging data on disparate bank accounts that have been opened by one person under different aliases. The aim of this deduplication is to provide a rich and accurate screening dataset, McLaughlin says.

Nice Actimize has also improved its payments messaging capabilities by extracting data points from messages that name data can be screened against. This is critical in the context of sanctions, Sausen says.

“We have to make sure that when you’re receiving payments into banks, especially in contexts like correspondent banking, that the payments coming through payments channels are not related to somebody who is sanctioned,” he says.