In this era of increasing financial regulations and complex global sanctions, financial institutions face growing pressure to enhance their sanctions screening processes. This article explores how effective management information (MI) can help firms stay ahead of regulatory expectations, particularly those set by the UK's Financial Conduct Authority (FCA).  

The Importance of Management Information 

Having the right management information (MI) is vital for senior financial services leaders, who must be “actively engaged in the firm’s approach to addressing the risks of non-compliance with UK financial sanctions”, according to a recently released consultation paper from the UK FCA.  

The document, Financial Crime Guide Updates, emphasises “the importance of management information to help ensure that the operations of sanctions systems controls is resourced and monitored effectively”. This stance aligns with the FCA's growing emphasis on MI for overseeing risk management in other areas, such as credit risk and operational risk.   

Thinking About MI 

The regulator recommends that MI for sanctions screening programmes should be provided regularly to senior management. This data should help identify gaps where the programme is not performing well or where sanctions screening risks are not being managed properly.   

Based on the regulator's indications, financial firms should consider collecting the following types of data for their sanctions screening MI:  

• Key Performance Indicators (KPIs) on the effectiveness of a firm’s sanctions programme systems and controls, such as the number of, and trends in, false positives. 

• Key Risk Indicators (KRIs) reflecting how well the firm meets its risk appetite for sanctions-related risks, such as identified problematic transactions and filed suspicious activity reports. 

• KPIs showing how sanctions compliance impacts the customer experience and consumer duty obligations, such as average onboarding time spent on sanctions checks and investigations. 

• KRIs on the existing customer base to manage emerging risks, including changes in the risk profile of current customers and trends in high-risk customer alerts. 

• KRIs indicating which business lines, sales channels, customer types, and geographical locations pose the most sanctions compliance risk, such as the number of suspicious activity reports, customer relationships exited, regulatory engagement, and alerts. 

Firms should regularly assess the actionability of their MI – what kinds of decisions can be made based on the MI and how well those decisions align with senior management’s responsibilities for the sanctions screening program. Consider how MI can be improved with additional data or different analysis.  

Getting the Reporting Right 

To deliver and evolve MI effectively, it is crucial to understand how the sanctions screening software’s reporting capabilities can meet the firm’s needs. Key elements include:  

Data governance – Senior management must have confidence in the quality of the MI it is receiving and basing its decisions on. The firm needs technology and processes that ensure data quality, monitor data timeliness, and more.

Data connectedness – The firm should be using sanctions watchlist management and sanctions screening technology that integrate easily with other enterprise platforms, such as customer relationship management (CRM) systems, to bring data together automatically. 

Data auditability – Senior management needs to ensure that data used in reporting and decision-making have a robust audit trail, demonstrating how the data are sourced, calculated, etc. Firms should be wary of data that seem to emerge from a “black box”, particularly via manual calculations or AI, which cannot be explained clearly.  

Sanctions software should provide all three of these elements, so that strength of the data can be demonstrated to senior managers, regulators, and other stakeholders.   

The Impact of AI and Machine Learning 

As technology evolves, AI and machine learning are increasingly impacting sanctions screening MI. These technologies can enhance data analysis, improve pattern recognition for identifying potential risks, and streamline the processing of large volumes of transaction data. However, it is crucial that the use of AI in sanctions screening MI maintains transparency and explainability to meet regulatory expectations.  

Conclusion 

As regulatory scrutiny intensifies, financial institutions must prioritise robust MI for sanctions screening. By focusing on data quality, integration, and auditability, firms can not only meet compliance obligations but also turn their sanctions screening processes into a strategic advantage. Effective MI enables senior management to make informed decisions, demonstrate compliance to regulators, and ultimately safeguard their institutions against the risks associated with sanctions violations.