Insights into frequently used screening/filtering

KPMG Forensic sanctions survey results

With ongoing conflicts and tensions around the world, the application and accurate implementation of sanctions has become increasingly relevant. In the spring of 2023, twenty financial institutions participated in KPMG Forensics’ survey about sanctions compliance. Topics in the survey stretched from governance and culture to current developments, filtering solutions and alert handling.
This blog is the third part of a trilogy and highlights the results of the survey that are related to sanctions screening and filtering solutions.

Data completeness biggest data quality challenge for the effectiveness of screening and filtering

The absence of comprehensive and reliable data increases the risk of missing sanctions alerts or encountering a high number of false positives. Therefore, the effectiveness of screening and filtering solutions is dependent on the quality of the client and transaction data. Most survey participants, approximately two-thirds of the respondents, identified completeness as the primary data quality challenge. Additionally, 25% of the participants noted that accuracy presents their biggest data quality challenge.

Figure 1: Responses of survey participants to the question Which of these characteristics of data quality do you consider to be the biggest challenge for the effectiveness of screening and filtering?

In addition to the data quality of the client and transaction data, the use of complete and accurate sanctions lists is key to ensuring sufficient sanctions screening and filtering. Figure 2 shows that around half of the survey participants indicate that they depend on their list vendor to assess the completeness and accuracy of the sanctions lists used in their screening and filtering solutions, instead of conducting (regular) testing on their own. Nevertheless, it is the responsibility of the entity itself to ensure the sanctions lists they employ are complete and accurate.

Figure 2: Responses of survey participants to the question How often are the completeness and accuracy of the sanctions lists in use by the screening and filtering solution tested?

The survey shows that a significant number of entities determine the thresholds for screening and filtering in consultation with the vendor. Around one-third of the participants follow a statistical approach when setting these thresholds, while approximately one in every five participants primarily rely on expert judgment for determining the thresholds. Financial institutions are recommended to follow a risk-based approach when determining thresholds for screening and filtering, taking into account the factors of regulatory requirements, risk appetite, risk assessment and/or (historical) data analytics.

Figure 3: Responses of survey participants to the question How has your organization determined thresholds for screening and filtering?

Half of the participants consider adopting a new screening or filtering solution

Approximately two-thirds of the respondents report that their client screening solution has been in use for over five years. Additionally, the survey highlights that roughly half of the participants are contemplating the adoption of a new screening or filtering solution. Among the surveyed entities, we see that solutions from a wide range of vendors are used for client screening and transaction filtering. Based on the survey results, no evident market leader can be identified.
Financial institutions should regularly test the effectiveness of their sanctions screening solution to ensure its ongoing accuracy and efficiency. A best practice is to conduct testing at least annually or whenever there are significant changes that may impact the effectiveness of the screening solution, where changes could include updates to sanctions lists, modifications to the institution's risk appetite or customer base, or enhancements to the screening technology. By testing the solution periodically, financial institutions can identify any weaknesses or gaps in the screening process, mitigate the risk of false positives or false negatives, and maintain compliance with regulatory obligations. Nearly half of the entities surveyed disclosed that they conduct annual testing of their sanctions screening and filtering solution, with some survey participants even conducting monthly testing.
When asked about the challenges associated with using a vendor for sanctions compliance, the vast majority of participants identified the lack of flexibility to accommodate specific requirements as the primary obstacle, as also shown in Figure 4. Other aspects, such as vendor solutions working as a socalled black box or integration of vendor solution with other systems, are identified by a relatively small number of participants as their biggest challenge.

Figure 4: Responses of survey participants to the question What is the biggest challenge when using a vendor in relation to sanctions compliance?

How KPMG can help

KPMG supports clients to (pro)actively design, implement and monitor sanction measures. Our team combines technical expertise with experience with financial institutions and compliance. KPMG has designed a global methodology used within the field of sanction model validations in accordance with the legal requirements, legal expectations of regulators and our experience within the sector. We can support institutions with our knowledge and expertise.

This blog is the third of a sanctions blog trilogy. In the other blogs, the themes of Governance and the Complexity of Sanctions Compliance and Recent developments have been further explored.

If you have any further questions or if you are interested in further insights or information, please do not hesitate to reach out to
Renske van Hooff (Partner at KPMG Forensic Technology – VanHooff.Renske@kpmg.nl) or Monica van Santbrink (Manager at KPMG Forensic Technology – VanSantbrink.Monica@kpmg.nl).