Making Negative News a Positive For Fintech Companies
Adverse media, or negative news, is an important component in the anti-money laundering (AML) programmes of many banks and large financial institutions, despite not being a regulatory requirement in the US, UK or EU. But can the same be said of fintech companies? And how successful have compliance teams found the tool in the fight against financial crime?
On the surface, there’s little reason to suspect know your customer (KYC) processes would differ significantly between fintech companies and some of the more established financial institutions. Afterall, both groups share a common objective in financial crime prevention and both are bound by financial regulations. But other factors such as resource and the approach to risk management can vary significantly, influencing decisions around practices such as adverse media screening.
Thirty-nine compliance executives from a range of fintech companies across the US, UK and Netherlands shared their views on adverse media with the FinTech FinCrime Exchange (FFE) for a report produced in collaboration with RDC.
The survey reveals the adoption of adverse media among FFE members and provides insights into how it is being implemented as well as views on its effectiveness and the challenges that are being faced.
Adoption of adverse media among fintech companies
Of the FFE members surveyed, 77% reported using adverse media as a risk management tool and 63% of those using it have done so for less than two years.
Respondents also confirmed they are using RegTech solutions to carry out their adverse media screening, rather than more cumbersome options such as search engines.
When examining adverse media usage across the customer life cycle, 67% of users implemented it at multiple stages, however it was predominantly used for customer risk assessment.
Is it a worthwhile cause?
When asked to rate the importance of adverse media as a risk management tool on a scale of 1-5, the average score of respondents was 3.87, indicating fair importance. And when considering the improvement of screening results on a scale of 1-7, the average score was 4.43, suggesting a moderate impact.
The majority of fintech companies surveyed (64%) expressed the view that adverse media screening should be a regulatory requirement. This included four organisations not currently using adverse media, suggesting there is appetite for legislation, which might then also encourage further development of solutions.
Understanding the pain points
False positives were highlighted as one of the biggest challenges for users of adverse media, with 83% sharing this concern. Related to this point were reported challenges surrounding additional workload – and both issues were identified as deterrents for fintech companies that don’t currently implement the tool.
As noted earlier in the article, there is also currently no regulation covering adverse media and therefore no set of rules to follow when implementing a solution.
Keeping ahead of the curve
With the majority of fintech companies in the survey utilising adverse media, it is clear the tool is considered an effective component in preventing financial crime. There are, however, several common challenges being faced by fintech companies, and finding the right adverse media solution could be key to mitigating these issues.
RDC has one of the world’s largest adverse media databases which is driven by powerful AI to help filter relevant risk and reduce false positives.
Find out more about the results from the fintech survey on adverse media by downloading the full report.