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Manual processes leave financial orgs open to risk, study shows

By Catherine Knowles, 26 Aug 2021

Two-thirds of banks, corporations and non-banking financial institutions (NBFIs) are still using search engines to comply with trade and export compliance regulations.

This is according to Accuity, a LexisNexis Risk Solutions company and a global provider of financial crime screening, payment services and know your customer (KYC) solutions.

According to the company, manual search leaves organisations open to missing red flags and making misinformed decisions over whether to accept business.

This can expose them to risk and potential regulatory action, and may also result in missed opportunities to participate in safe and legitimate trade transactions.

Trade finance providers, as well as insurers, logistics firms and others involved in international supply chains are responsible for conducting due diligence on the parties and items involved in the transactions and shipments they facilitate, Accuity states.

This includes verifying the legitimacy of the customer and all parties to the transaction, checking for dual-use or controlled goods (for example, those that could have a military purpose) and ensuring funds and goods are not going to or coming from a sanctioned location.

The trade compliance survey conducted by Accuity highlights how widespread manual search remains even years after the emergence of automated solutions to detect trade compliance risks, such as sanctioned entities and dual-use goods.

Key findings from the research include the following.

Trade compliance is not always handled by a dedicated team: Banks are managing trade compliance mostly through a dedicated compliance function.

Non-banking financial institutions (NBFIs) are handling it as part of the KYC process and corporations as part of a central compliance function or general operational team.

Multi-variable screening is mostly limited to banks: More than 90% of banks screen for five or more data points, including sanctions, goods, vessel names and ultimate beneficial owners (UBOs), compared to only a third of non-banks.

Challenges posed by changing regulation: The biggest challenges for banks and corporations are keeping up with rapidly changing regulations and increasing expectations, while NBFIs find document-heavy processes the biggest burden.

Efficiency gains planned: 60% of firms revealed that they plan to invest in the integration/interconnectivity of systems, with 74% looking to improve data sharing and transparency.

Compliance as an advantage: Competitive advantage is seen as the main benefit of trade compliance. Corporations reported less concern over fines, while prioritising improving the flow of business through smarter licence management.

Accuity director of trade compliance Aneta Klosek says, “Trade compliance is a critical function where mistakes can cost businesses millions. An area where the smallest omission can throw off the entire strategy of a business is no place to take a chance.

"On the other hand, the study has shown that getting trade compliance right can produce a significant competitive advantage, so there is every reason for firms across the breadth of the supply chain to make this a focus.

"We are seeing more banks and other organisations turn to comprehensive data and technology-enabled solutions to ensure their compliance framework is absolutely watertight and they have flourished throughout the pandemic as a result.”

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