Adverse Media Screening: Shielding Reputations

In different regulatory jurisdictions worldwide, adverse media screening is increasingly being used to protect banks and other financial service providers from risk and associated penalties. These systems screen for negative media stories, and flag potential risks to companies such as predicate crime which may be indicative of money laundering or terrorist financing.

As well as protecting against potentially significant fines from regulators, adverse media screening protects companies from reputational damage. Often, tainted opinions of an organisation can lead to long-term consequences including loss of revenue and difficulty forming partnerships. Reputational damage can keep customers from buying goods and services, and it gives rivals a competitive edge. Altogether, it can drastically impact shareholder value.

As the potential for reputational damage is multi-faceted, adverse media screening is now increasingly commonplace to identify risks early and provides the maximum opportunity to avoid counter-party risks from customers, suppliers and others. In addition to traditional anti-money laundering (AML) and counter-financing of terrorism (CFT) threats, companies are increasingly considering broader third-party risks including environmental, social, and governance (ESG) concerns.

The importance of customer screening
Screening customers, vendors and other counterparties for potential risks is not a new business practice. Traditionally this analysis focussed on the first point of contact, tapping into PEP and Sanctions lists as well as other watchlists. Such checks would be followed up periodically depending on the level of risk.

In today’s 24/7 news environment, however, bad actors and those operating unethically, are often flagged in the media before any information is available on watch lists. Adverse media screening therefore gives organisations the most up-to-date information possible. Efficient screening mechanisms allow organisations to act in a timely manner, filling gaps that other customer due diligence (CDD) systems may have missed.

Traditional AML data resources such as watchlists include information sourced from a number of data points – often including some media sources. However, its only by monitoring broader media outputs that organisations can benefit from a broad well-rounded analysis of potential risks. Unlike regulatory threats, reputational impact can be difficult to assess and quantify. This is because the news agenda moves quickly, and stories can spread rapidly through social media, sometimes even before a company is aware. Adverse media screening keeps firms ahead of this cycle and allows them to make important compliance decisions before long-term damage can impact the future of the organisation.

Media screening and sanctions
In the current political climate, sanctions lists are updated frequently. Adverse media screening can predict, and quickly identify those bad actors who could be in violation of sanctions regulations before they are officially flagged. Putting organisations with good adverse media screening in place on the front foot.

Following recent geopolitical events, like Russia’s invasion of Ukraine, organisations have had to be agile and hypervigilant in order to avoid sanctioned or risk counterparties. The political nature of these events also adds an emotional aspect and therefore, increased reputational risk for those seen to be associated with the wrong entities.

Different adverse media signals.
In order to get the most from screening negative media stories on a huge scale, it is important to categorise different kinds of data to glean the most important insights. Determining if a piece of media coverage represents reputational risk, regulatory risk or both, enables firms to act in the most appropriate manner.

Through the monitoring of certain kinds of adverse media and topics, companies can swiftly react to developing news in order to avoid regulatory or reputational risk. Different reputational risks often overlap with criminal behaviours such as drug dealing, prostitution or human trafficking. As well as looking at employees and customers, organisations should also screen suppliers and other related businesses. Environmental violations such as excessive pollution or actions to impact endangered species are likely to draw attention from media and lead to reputational damage. Equally, companies should hold international partners to the same standards that they work to and should implement media screening to support this. As a result, reputational and regulatory damage can be avoided by implementing best practice.

What does effective adverse media screening look like?
By its very nature, reputational damage is unpredictable, depending on the activities involved and their media exposure. To limit the impact of reputational damage, or avoid it fully, firms must have an early warning system to identify risk. The challenge, therefore, is to identify risks in an efficient manner in a crowded and fast-paced media landscape.

The biggest challenge with effect Adverse Media screening is false positives. In capturing enough of the important risks, it is common to see an explosion of unwanted matches. That issue is often exacerbated by the use of unsophisticated tools to identify risks.

In the battle to be one step ahead of reputational and compliance risks within their organisations, an increasing number of compliance teams are looking to use artificial intelligence (AI) and machine learning (ML) tools in order to allow them to work more efficiently. Rather than manually searching through the news to look for potential threats, these tools can essentially read millions of sources across many different languages quickly and efficiently in order to massively reduce the burden for analysts of high false positive rates.

As these teams are under increasing pressure to perform without the necessary manpower, these tools can reduce the time taken by manual processes. The reach of these tools – being able to interpret millions of articles every single day – vastly enhances the ability to surface meaningful matches with the customer portfolio or supply chain. Reputation is everything. Well executed adverse media screening provides a unique tool to ensure you maintain it.