The power of early sanctions screening technology in payment journeys

Dalbir Sahota, Sr. Director, Product Management at LexisNexis® Risk Solutions, reveals how technological solutions identify sanctioned banks before a payment is initiated to mitigate risk and reduce the costs associated with failed payments.

Geopolitical forces have made the global risk landscape infinitely more complex than it was even two years ago. Sanctions lists are ever-changing, prompting organisations to find better and faster ways to identify sanctioned parties. New technology that identifies sanctioned banks before a payment is initiated can mitigate risk and reduce the costs associated with failed payments.

How costly are failed or stopped payments? In 2020, an estimated USD 118.5 billion was lost to failed payments globally. But lost revenue is not the only concern, failed payments negatively impact customer experience and can compromise an entire relationship. With more than 70% of organisations indicating that they are not satisfied with their payment failure rate, reducing failed payments and boosting straight-through processing have become a high priority.

In addition to operational cost and customer dissatisfaction, sanctions violations and anti-money laundering (AML) plus know your customer (KYC) compliance issues cost financial institutions nearly USD 5 billion globally in 2022, according to the Financial Times. That’s a 50 percent increase over the previous year.

Although the initial sting of a fine or financial penalty for non-compliance may be painful – and trigger increased regulatory scrutiny and onerous ongoing audits – the reputational damage caused by such a lapse can be even more costly and long-lasting. Screening for sanctions early in the payment process provides an important layer of defence that strengthens compliance, saves time, and reduces friction for the customer.

While the number of updates for the first half of 2023 may be down by 31%, sanctions activity remains at historical highs, a trend that is likely to continue for the foreseeable future. Lists maintained by the four key regulators – the United Nations (UN), European Union (EU), Office of Foreign Assets Control (OFAC), and the Office of Financial Sanctions Implementation (OFSI - UK) – changed constantly, with entities added, deleted, and modified at an unprecedented rate.

Doing business with a sanctioned bank or other sanctioned entity puts every participant in the payments chain at risk. Therefore, banks and other organisations need to find the most effective way to keep pace with shifting sanctions and comply with anti-money laundering/countering the financing of terrorism (AML/CFT) regulations. While the volume of sanctions activity may have changed, the laser focus of regulators on maintaining systemwide integrity and keeping payments systems secure has not.

Technology that provides greater control over sanctions screening earlier in the payment process helps organisations stay abreast of changing sanctions, ensures compliance, and prevents payment delays.

Several technology solutions that instantly validate customer-entered account details to ensure payments are routed to the correct account holder are available. They typically alert the payer in the event of an error, so changes can be made before the payment is sent to the bank. However, these systems do not check for sanctioned banks.

Screening for sanctioned banks before initiating payment to the payee offers numerous benefits to all participants in the payments chain. In addition to reducing repairs and costly failed payments, saving time, and improving straight-through processing rates; early sanctions screening provides a more satisfying customer experience with fewer processing delays. Most importantly, early screening delivers an additional layer of security that strengthens compliance. When combined with accurate, up-to-date data, early screening also enables organisations to automate payments with confidence.

At most organisations, the payments process from the sender (‘payer’) to the recipient (‘payee’) leaves the sanctions ‘door’ constantly open, exposing banks, payment service providers (PSPs), and businesses to risk when sending or receiving payments.

Typically, the payer organisation checks customer-entered information against payments data requirements (e.g., bank name, IBAN number) and corrects errors before the payment is initiated. Screening for sanctions occurs later in the payments process – after the validated payment is sent to the bank. If the bank then identifies a sanctioned entity, the payment cannot be executed and is returned to the payer for further action, slowing the payments process. By contrast, identifying a sanctioned entity before the payment leaves the payer, saves time and expense.

Early sanctions screening is an important new compliance tool from LexisNexis® Risk Solutions as part of its Bankers Almanac® Validate™ suite of products. In addition to instantly verifying domestic and international payment information and driving automation wherever it is needed in the payments flow, this tool allows organisations to see if the bank to be paid is sanctioned – enabling organisations and their customers to cease payment at the point of initiation. With data updated daily from OFAC, EU, UN, and OFSI sanctions lists, organisations can reliably increase compliance posture in a way that complements existing financial crime compliance controls and improves customer experience.

It’s likely that the complexity and recent high level of sanctions activity will continue for the foreseeable future. Screening solutions that enable organisations to instantly check for sanctioned banks prior to initiating payment offer an early line of defence to preemptively identify sanctions risk in the payments flow, decrease operational costs, and improve customer experience.

Taking control of the screening process with better technology and earlier sanctions identification makes wise business sense.

About Dalbir Sahota

Dalbir Sahota is a seasoned executive with more than 20 years of experience in global financial services and product management. He worked in investment banking transformation for 16 years, covering the domains of client data management, foreign exchange services, derivatives middle office change and Know Your Customer (KYC)/Customer Lifecycle Management (CLM) product management.

Since joining LexisNexis Risk Solutions in 2018, Sahota has been leading the product management transformation for the Bankers Almanac product portfolio, with a focus on solving critical customer payment and financial counterparty KYC problems using data and technology. He is dedicated to customer-centric design thinking and roadmap delivery, leveraging experimentation and customer discovery to prioritise customer needs.

About LexisNexis® Risk Solutions

LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information-based analytics and decision tools for professional and business customers. For more information, please visit www.risk.lexisnexis.com and www.relx.com.