PEP, Sanctions and Adverse Media: Reduce False Positives

We’ve recently achieved a 3% average reduction in false positives across all of our clients, with some seeing a 20% drop. This translates to a saving of 400 hours of review time each month. Let’s explore the three key steps that made this possible. But first, an explanation of PEP, sanctions and adverse media.

Understanding PEPs, Sanctions and Adverse Media

• Politically Exposed Persons (PEPs) are individuals in prominent positions in a government body or international organisation. They’re considered high-risk due to potential involvement in corruption, money laundering or terrorism financing. This includes their immediate family members and close associates. Even after leaving a political position or ending a relationship with another PEP, an individual may still pose a risk.
• Sanctions are restrictions imposed by governments or international bodies on specific countries, individuals or organisations. These aim to promote peace, prevent terrorism and deter human rights abuses. To comply with Australia’s sanction laws, businesses must screen their customers and partner entities to determine whether they have been sanctioned. 
• Adverse media refers to negative news or information about individuals or entities, suggesting possible unethical or illegal activities like financial fraud and modern slavery. The presence of adverse media helps flag potential risk early in the customer relationship that may not be evident through other screening processes.  

Organisations covered by the Anti-Money Laundering/Counter Terrorism Financing (AML/CTF) Act must verify the identities of those they do business with before providing a designated service. Screening for PEP, sanctions and adverse media ensures regulatory compliance and safeguards your business reputation.

The false positive problem

In PEP, sanctions, and adverse media screening, false positives occur when an individual or entity is incorrectly identified as a potential match. (A true positive is the correct identification of a match). False positives force time-consuming manual reviews to check the accuracy of the match, leading to frustrating delays and diverting resources from more strategic tasks. 

In fact, a staggering 95% of potential matches can be false positives. Common causes include low-quality data and a lack of contextual information, which makes distinguishing between true and false positives difficult. 

Let's explore three key steps to reduce false positive rates.

Step 1: Improve your data quality

Access to accurate, reliable and up-to-date data is essential. As PEP and sanction lists are constantly changing, it’s necessary to use the latest regulatory lists to ensure your business is protected.

With the recent enhancements to Global Screening by Equifax, which now includes a more granular level of data, our clients have been able to achieve more targeted screening by identifying the specific risk categories that are most relevant to their customer base. This strategic narrowing of potential risks helps businesses avoid a large number of irrelevant matches. 

Step 2: Integrate adverse media screening carefully

Adverse media screening is a valuable tool for managing reputational risk, but adding more data sources increases the volume of matches and false positives. 

Before integrating adverse media checks, seek expert guidance to help minimise your existing false positive rate. This will streamline the review process and reduce the number of inaccurate matches.

Step 3: Customise with expert guidance

As every business has unique needs and risk profiles, it’s crucial to partner with a screening provider who offers data-driven recommendations to fine-tune your screening parameters.

For example, Equifax recently helped an insurance company reduce their false positive rate by 15% after adding adverse media screening. By analysing their database and historical screenings, we identified that they were screening overseas individuals and certain PEP sub-categories unnecessarily. Adjusting these parameters saved the company significant time and resources.

Remember, effective PEP, sanctions and adverse screening is an ongoing process. By leveraging the latest technologies and adapting your approach, you can stay ahead of regulatory requirements, minimise false positives, and protect your business.