Negative News Screening

What is negative news screening?

When organizations proactively seek negative news to detect relevant information about individuals or companies they plan to work with, we call this negative news screening. Organizations conduct negative news searches for various reasons. For example, Payment Service Providers (PSPs) must screen merchants for negative news before onboarding them due to Know Your Customer (KYC) and Anti Money Laundering (AML) regulations.

What’s the difference between negative news screening and negative news monitoring?

Negative news screening refers to conducting negative news checks on a person or entity before they are onboarded. On the other hand, negative news monitoring is when companies perform media checks on third parties after they have been onboarded and continue to monitor them continuously. These two approaches, screening, and monitoring, play vital roles in managing risk and ensuring compliance throughout the entire lifecycle of a business relationship.

Why do organizations screen for negative news?

Risk managers can identify potential risks in various areas, such as cyber security, environmental impact, social responsibility, financial stability, and compliance, by conducting negative news screening.

What are negative news examples?

What counts as negative news depends on the organization conducting the negative news screening and how a possible threat would impact them. However, examples of risk signals that organizations should usually be aware of when they screen third parties are signals indicating:

Operational Risk

This refers to the risk of disruption or inefficiency in operations caused by the actions or shortcomings of third-party vendors or service providers. An example of a news event that may indicate operational risk at a company could be a news article reporting a significant data breach or cyber-attack that has compromised the company’s systems and disrupted its operations.

Compliance Risk

This involves the risk of non-compliance with laws, regulations, or industry standards due to the actions or practices of third-party entities. An article that may indicate compliance risk at a third party could be reporting allegations of regulatory violations or non-compliance with industry standards.

Reputational Risk

This pertains to the risk of damage to an organization’s reputation due to the actions, misconduct, or negative events associated with third-party vendors or partners. News indicating reputational risk at a vendor or partner could be about a major data breach compromising customer information and privacy.

Information Security Risk

This includes the risk of data breaches, unauthorized access, or loss of sensitive information due to inadequate security measures or vulnerabilities in third-party systems or processes. News articles that may indicate information security risk at a company could be reporting a successful cyber-attack on the company’s systems resulting in a data breach.

Financial Risk

This involves the risk of financial losses, fraud, or improper financial practices resulting from third-party entities’ actions or financial instability. News events that may indicate financial risk at a company could be news articles reporting a significant decline in the company’s financial performance, such as a sharp drop in revenue or profits.

Supply Chain Risk

This encompasses risks associated with the supply chain, such as disruptions, quality issues, non-compliance, or unethical practices, originating from third-party suppliers or logistics partners. A news article that may indicate supply chain risk at a company could be reporting a disruption in the supply chain due to a natural disaster, political instability, or a major supplier’s financial difficulties.

Legal Risk

This refers to the risk of legal disputes, litigation, or regulatory actions arising from third-party entities’ activities, contracts, or non-compliance. An example of something in the news that may indicate legal risk at a company is a news article reporting a lawsuit or regulatory investigation involving the company.

How can organizations screen for negative news?

Organizations can screen for negative news in many different ways. One approach involves allocating resources for conducting manual risk assessments, while another involves establishing collaborative networks or industry forums where stakeholders exchange information and insights regarding adverse media incidents related to vendors.

However, the task of monitoring numerous vendors can be daunting for human operators, especially when it entails swiftly screening extensive global news sources available in different languages. To overcome this challenge, organizations can harness the power of technology to automate the process and uncover pertinent insights that might have otherwise gone unnoticed. This enables companies to monitor a significantly larger vendor landscape than ever before, ensuring comprehensive attention and scrutiny for all vendors.

How can technology help organizations screen negative news?

Companies can leverage advancements in the technological landscape and adopt AI-driven tools like Natural Language Processing (NLP). These tools enable the analysis of vast volumes of global data, empowering organizations to proactively identify and mitigate potential risks in near real-time.

What sources can organizations use for negative news screening?

Besides news articles, businesses could also screen other databases for negative news in order to detect risk signals early, such as Chamber of Commerce Data, Sanctions Data;, Politically Exposed Persons (PEP) Data, State-Owned Enterprises (SOE) Data, Black- and Warning lists, Consumer Reviews, PDF documents and Alternative Data (e.g. financial statements).

What regulations require organizations to screen for negative news?

There are various regulations and guidelines that encourage or require organizations to screen for negative news and mitigate associated risks. Some notable examples include:

Anti-Money Laundering (AML) Regulations

AML regulations require organizations, particularly financial institutions, to conduct due diligence on their customers and business partners to prevent money laundering and terrorist financing. This includes screening for negative news related to potential clients and associated parties.

Know Your Customer (KYC) Requirements

KYC regulations, enforced by financial regulators worldwide, mandate organizations to verify the identities of their customers and assess the risks associated with their business relationships. Screening for negative news is an integral part of the KYC process to identify adverse information or associations.

Sanctions and Embargoes

Governments impose sanctions and embargoes on individuals, entities, or countries to restrict certain business activities due to political, security, or economic reasons. Organizations are obligated to screen their business partners and clients against sanctioned party lists and monitor for negative news related to these restricted entities.

Data Protection and Privacy Regulations

Data protection laws, such as the European Union’s General Data Protection Regulation (GDPR), require organizations to protect the personal information of individuals. Negative news screening becomes crucial to identify any potential breaches or security incidents that may pose risks to data protection.