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List screening innovation

Overcoming the limitations
of traditional list
screening technologies

February 2018
What you need to know
Global financial institutions are
continually being faced with rising
operation costs and risk--some of
the main contributors include
increased regulatory expectations,
growing businesses, and list
screening inefficiencies. Common
inefficiencies within the screening
process span a wide variety of areas,
including data collection and
preparation, entity matching and
scoring, and match resolution and
investigations. Financial
institutions are being held to
increasingly higher levels of
accountability in the prevention
of financial crime.
Regulations focus on mitigating
financial crime threats, but these
enforcements add significant costs
that financial institutions must
bear. Regulators have tightened
their focus on screening programs
and are levying significant penalties
on institutions that do not comply
with various sanctions regulations.
Since 2004, multiple financial
institutions have received fines
totaling $14.8 billion for violating
US economic sanctions.
In addition, due to constant
business growth, transaction and
client screening volumes keep
increasing, potentially raising the
number of alerts requiring review.
PwC | List screening innovation
Despite rising alert volumes and
increased regulatory expectations,
traditional list screening tools have
not progressed significantly over
past years. Tuning and optimization
capabilities are often limited,
leaving financial institutions with a
staggering number of alerts for
review. In a 2016 global NICE
Actimize survey of 203 financial
institutions, an overwhelming 87%
of respondents said their
organizations’ financial crime risk
management processes and systems
are, at best, “somewhat efficient,”
with investigators spending a
significant amount of time on
manual activities.2
Fortunately, financial institutions
have the ability to leverage
innovative solutions to address the
increase in screening
responsibilities. Automation
techniques with varying degrees of
sophistication--including business
process automation (BPA), artificial
intelligence (AI), robotic process
automation (RPA), natural language
processing (NLP), and intelligent
process automation (IPA)--can be
introduced to immediately increase
operational accuracy and yield long-
term cost and time savings.
These solutions may be used in
conjunction with traditional list
screening software or as a
replacement to mitigate
shortcomings of list screening
processes and technologies.
When implementing automation
techniques in screening, financial
institutions must also understand
that these techniques introduce
significant complexity and a
number of challenges along with
regulatory scrutiny. As with the
introduction of any new industry
technology, regulators are still
developing comfort around the
accuracy and efficiency of
automation and related processes.
By taking the right steps in
assessing the current screening
process and identifying
opportunities for improvement,
financial institutions can implement
innovative solutions to fit their
specific needs while limiting
noncompliance risks.
1
What is the innovative
technology landscape?
Multiple advanced automation
techniques are available that help to
drive efficiency and optimize
operations. These techniques may
help to improve one or more aspects
of a financial institution’s processes,
but they can vary greatly in
sophistication and innovation.
BPA uses software applications and
logic-based integration of multiple
systems to increase the efficiency of
labor-intensive business processes.
BPA changes the underlying back-
end functioning of a system, relying
on the development of rules and
scripts found within each specific
application to perform processes.
BPA is typically used for processes
that require multiple systems to
work together with specified logic.
AI uses methods of data processing
guided by context-based decision
making to take action and solve
problems. AI enables machines to
respond on their own to signals
from the external world, signals that
programmers do not directly
control and therefore cannot
anticipate. This technique, often
used for manual and cognitive tasks
that are either routine or non-
routine, automates existing tasks
with or without human assistance.
RPA uses data aggregated from
multiple sources and integrates it
into a single view to complete
repetitive, labor-intensive business
processes. RPA platforms mimic the
individual actions and process steps
that are undertaken by humans,
thereby enhancing the cumulative
effect beyond just automation
within individual applications. RPA
may be used for labor-intensive,
repetitive activities that require
significant amounts of data
processing across multiple
applications and involve a high
degree of human input.
NLP is a computer-generated
virtual assistant that simulates a
conversation to provide guidance.
This technique removes the need to
have manual conversations and
responses such as those offered
within a customer service function.
IPA is a framework that combines
automation with AI and applies
experiential learning to data pulled
from multiple sources for context-
based decision making. Since the
technique uses a cognitive
framework to develop insights,
applying IPA when a variety of data
processing and knowledge is
required to make contextual
decisions can be very beneficial.
So, how can these automation
techniques be applied to
increase the efficiency of list
screening processes?

Automation techniques

Robotic
process
automation Intelligent
Business (RPA) process
process automation
automation (IPA)
(BPA) Natural
Artificial language
intelligence processing
(AI) (NLP)

Low Automation sophistication High

PwC | List screening innovation 2

Key challenges in list screening
There are significant challenges with list screening, which are the result of inefficiencies throughout the screening
life cycle, including aspects of data collection and preparation, entity matching and scoring, and match resolution
and investigations. Financial institutions are struggling with the complexities of list screening, increased regulatory
demands, growth in transaction volume, and the overall surge in costs associated with the entire screening process.
We have seen financial institutions suffer from common inefficiencies, which are outlined below:

Data collection Entity matching Match resolution

and preparation
 Client or transaction data
contains limited information
that may impact the accuracy
of the screening system's
matching effectiveness or alert
optimization capabilities
 Watch-lists (internal and
external) originate from
multiple sources, and can
therefore include duplicates
or inconsistent information
 Unstructured text is manually
analyzed and is sometimes
manually inputted into the
screening platforms, leading to
reliance on manual controls
and alert inaccuracy
and scoring
 The screening engine is
unable to factor input or list
data quality/completeness
issues into the matching logic
 Cultural variations are not
factored into the matching
process (e.g., given names,
noise words, culture-specific
practices, etc.)
 Match suppression and
contextual scoring abilities are
limited to basic computation,
thus increasing the risk of
missing true positives
and investigations
 There is constant pressure on
investigations analysts to clear
a high numbers of alerts,
thereby introducing a risk of
"investigator fatigue" and
disposition errors
 Investigators usually require
additional information to
discount or confirm a generated
match by querying internal
systems or external sources,
which can take up to 20 minutes
per alert
 Investigators are required to
manually add narratives and
supporting evidence during alert
disposition, which serves to
further increase the amount of
time required per alert and can
also result in the oversight of
key information

PwC | List screening innovation 3

How can automation techniques
be applied to list screening?
BPA, AI, RPA, NLP, and IPA solutions present a great opportunity for financial institutions to vastly improve
screening procedures by automating data aggregation and screening preparation, generating fewer high quality
alerts, and automating portions of the workflow and investigations process.
Data aggregation
and preparation
Data aggregation and
preparation automation
opportunities
More than half of the respondents
in the NICE Actimize survey
reported that analysts spend at least
30% of their time on manual
processes, including the collection
of data. Both screening input data
and additional information required
during an alert investigation can be
collected using automated
solutions. BPA solutions may be
used to integrate and manipulate
structured and unstructured data,
while RPA and IPA solutions can
simulate investigator actions and
gather additional data points based
on alert information to later assist
with dispositions.
These solutions may be
implemented pre- or post-screening
to assist with reducing the number
of alerts by screening only relevant
data or by bringing additional data
from multiple sources to discount
invalid or irrelevant matches.
PwC | List screening innovation
Advanced matching
and scoring
Data that is enriched prior to
screening, can help improve the
matching and scoring process.
Automated enrichment of data can
include combining the input
dataset with internal or external
data to provide a more
comprehensive dataset prior to
screening. For example, payment
data may be augmented with know
your customer (KYC) system
information, which can be used to
discount alerts.
Real-time input data normalization
o that it includes many individuals in
offered by BPA or AI tools als
provides an opportunity to enhance
the data prior to screening. This
technique remediates data issues
prior to screening in a way that
makes matching and scoring more
effective (e.g., removing noise from
names, extracting city and country
from address information) without
blocking the screening process and
without manual intervention.
-
Alert
investigation
In addition, AI vendors have been
focusing on consolidating and
enhancing watch list data, which
remains a critical input into the
screening and investigations
processes. Using link analysis
techniques, consolidated profiles
can be enhanced with additional
risk information to assist with
reducing the number of alerts. This
technique is particularly useful for
politically exposed persons (PEP)
and negative news screening. The
definition of PEP used is so broad
different levels of public office and
their associates that do not
necessarily pose a significantly high
level of risk to the financial
institution. This breadth gives
flexibility with regard to the
financial institution’s risk appetite,
but, if not carefully managed, can
lead to many individuals being
screened who are not of interest to
the entity in question.
4
Advanced matching and
scoring opportunities
Since one of the core limitations of
traditional screening engines
resides in the matching logic,
advanced AI techniques can be
used to perform more intelligent
matching and provide more
accurate and pertinent
risk measures.
As more financial institutions
process global data sets, cultural
variations are becoming an
increasingly important factor in the
matching logic in order to provide
more accurate matches or generate
matches that would be
missed otherwise.
Fuzzy name variations are not the
same from one region to another
and can sometimes vary from one
country to the next within the same
region. For example, in North and
South Korea, first names are more
meaningful to confirm someone’s
identity compared to the English
language, therefore a missing first
name is more impactful and should
be treated by the matching engine
as such. Certain AI solutions are
built on top of knowledge databases
capturing billions of entries that the
matching engine will leverage
during processing. Coupled with
translations or transliteration
techniques, those solutions become
more sophisticated in matching
cross-lingual text, which is often
seen in payment instructions.
Innovative solutions also provide
effective contextual matching
capabilities, combining other entry
attributes (besides name) and
providing a measure to determine
the likelihood that the matched
entity is, in fact, a true match.
PwC | List screening innovation
Some AI solutions provide the
ability to define complex scoring
models in order to determine the
similarity between two entries
based on advanced factors such as
geo-localization and proximity
(e.g., compares the input record’s
associated country with that of the
list entity to score based on the
commonality and proximity of the
locations), name commonality and
token frequencies (e.g., compares
all words or “tokens” from the input
record marked as a “name” field
and those tokens of the list entity to
score based on the commonality of
the tokens) within a particular
country or region.
In addition, as input or list data
availability and trends are key to
determining the outcome of a
potential match, certain AI
solutions know how to adapt and
take certain data patterns into
consideration within the model.
These solutions generate a different
outcome based on statistical
measures for different
population segments.
Alert investigation
automation opportunities
The final stage of the screening
process involves investigators
accessing disparate systems,
spending time gathering evidence
from internal and external sources,
and recording the conclusions of
their investigations.
More than half of the respondents
in the NICE Actimize survey
reported that seven or more
systems are accessed during a
typical alert investigation. Each of
these aspects has opportunities
for automation.
Post-alert generation, IPA solutions
can be applied to the alerts based on
client, payment, list information,
and external information to
eliminate alerts based on defined
rules and disposition history.
Automated match resolution
techniques reduce the quantity of
false positives that require
further investigation.
In addition to automated
investigations, RPA solutions can be
implemented to reduce toggling
time and speed up the disposition
process. Similarly, evidence
gathering can be automated using
universal matching from internal or
external sources for analyst
consideration, thereby reducing
time spent in collecting and
consolidating research.
Lastly, NLP techniques can be used
to assist with post-investigation
alert disposition commentaries.
This technique can pre-populate
alert comments by sourcing internal
documents and research or pre-
populate alert disposition
comments based on alert details
and previous dispositions.
5
What should financial institutions
be doing?
When it comes to innovating and
automating the screening process,
financial institutions will need to
determine which automation
opportunities are most pertinent
given their current processes,
operations, and risk appetite.
Automating various aspects of the
screening process requires a well-
defined approach to increasing
efficiencies while still satisfying
regulatory expectations.
Steps to consider
Prior to implementing any of these
automation techniques, financial
institutions should take steps to
identify automation opportunities
and select the appropriate
technology framework to support
their specific screening needs.
These steps include:
Steps financial institutions can take to innovate their list screening programs through
automation techniques
Automation
opportunity
assessment
Requirements
gathering
PwC | List screening innovation
 Conducting an in-depth
analysis of the current screening
process to understand the
capabilities and limitations,
identify operational gaps and
deficiencies where automation
tools could be applied to make
the process more efficient and
effective, and determine which
solution is most appropriate
 Evaluating if the current process
requires re-engineering to
prevent redundancy
and leakages
 Defining the future state
screening process including
system architecture and
requirements for each
improvement area
 Defining the risk tolerance as
a baseline to evaluate the
automated solution against
the financial institution's
risk appetite
Innovation
solutions
1 6
Integration
Vendor support and
selection implementation
 Choosing a qualified vendor
through the RFP/vendor
selection processes and
conducting proofs-of-concept
 Validating the new solution and
documentation to ensure
transparency in the technology
and avoid reliance on high cost
niche software skills
 Implementing and integrating
automation tools based on
the requirements
previously gathered
 Conducting tuning, if applicable,
of the automated solution to
generate alerts as per the
financial institution's
risk tolerance
 Validating the implementation
of the solutions (internally or
externally), including
identification of gaps or
improvement opportunities
following industry standards
and regulatory expectations
Validation
Tuning
6
What’s next?
Financial institutions continue to
work towards transforming core
screening operations to address
significant industry risks and costs.
Optimizing and improving
efficiencies means more than
just upgrading systems – it
means innovation.
PwC | List screening innovation
Financial institutions should begin
to innovate their list screening
procedures by using automation
techniques to improve the accuracy
of business processes, increase the
efficiency of list screening, and
streamline the overall process.
Transaction volumes will grow and
we expect regulatory scrutiny to
continue to increase in the
coming years.
As a result, financial institutions
should take a proactive approach in
assessing and implementing
automation techniques, before their
list screening processes become
unsustainable, while also keeping in
mind that it is important to take
preventive steps to mitigate
associated risks.
7
Endnotes
1. PwC, Global sanctions:
Evaluating and managing the
changing landscape:
https://www.pwc.com/us/en/
industries/financial-
services/financial-
crimes/library/sanctions-
overview.html
2. PwC, Manual transition:
Transforming financial crime
investigations through
automation:
https://www.pwc.com/us/en/
financial-services/financial-
crimes/publications/assets/pwc
-actimize-financial-crimes-
investigation-automation.pdf

PwC | List screening innovation 8

To have a more
in-depth conversation
about list screening
innovation,
please contact
Sean Joyce Jeff Lavine
Financial Crimes Unit Leader Financial Crimes Unit
(703) 918 3528 Chief Operating Officer
sean.joyce@pwc.com (703) 918 1329
jeff.lavine@pwc.com

John Sabatini Vikas Agarwal

AML and Sanctions Leader Financial Crimes
(646) 471 0335 Technology & Analytics Leader
john.a.sabatini@pwc.com (646) 471 7958
vikas.k.agarwal@pwc.com

Daniel Tannebaum Devesh Desai

Global Sanctions Leader KYC & Screening Technology Leader
(646) 471 7159 (646) 471 0501
daniel.l.tannebaum@pwc.com devesh.desai@pwc.com

Julien Chanier Contributors:

Jennifer Friedberg and Ipshita Ray
Director
(646) 335 4488
julien.chanier@pwc.com

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