Negative News Screening

What is negative news screening?

When organizations actively search for adverse information about potential business partners, this is known as negative news screening. Organizations perform these searches for various reasons. For instance, Payment Service Providers (PSPs) need to screen merchants for negative news prior to onboarding, in compliance with 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 involves checking for adverse information about a person or entity before onboarding them. Conversely, negative news monitoring is the process where companies perform ongoing media checks on third parties after onboarding, continuously overseeing them. Both screening and monitoring are crucial for managing risk and maintaining compliance throughout the entire duration of a business relationship.

Why do organizations conduct negative news screening?

Negative news screening allows risk managers to pinpoint potential risks across multiple domains, including cybersecurity, environmental impact, social responsibility, financial stability, and regulatory compliance.

What are negative news examples?

The definition of negative news can vary depending on the organization conducting the screening and the potential impact of threats. However, typical risk signals organizations should be aware of when screening third parties include:

Operational Risk

This involves disruptions or inefficiencies in operations caused by third-party vendors or service providers. For instance, a news report about a significant data breach or cyber-attack disrupting a company’s operations can signal operational risk.

Compliance Risk

This refers to the risk of failing to comply with laws, regulations, or industry standards due to third-party actions. An example is an article reporting allegations of regulatory violations or non-compliance by a third-party entity.

Reputational Risk

This pertains to damage to an organization’s reputation due to the misconduct or negative events associated with third-party vendors or partners. A major data breach compromising customer information and privacy could be an indicator of reputational risk.

Information Security Risk

This includes risks related to data breaches, unauthorized access, or loss of sensitive information because of inadequate security measures or vulnerabilities in third-party systems. For example, a news report about a successful cyber-attack leading to a data breach can indicate information security risk.

Financial Risk

This involves risks of financial losses, fraud, or improper financial practices due to the actions or instability of third-party entities. News articles reporting a significant decline in a company’s financial performance, such as a sharp drop in revenue or profits, can signal financial risk.

Supply Chain Risk

This encompasses risks linked to the supply chain, such as disruptions, quality issues, non-compliance, or unethical practices from third-party suppliers or logistics partners. A news report about a supply chain disruption caused by a natural disaster, political instability, or financial difficulties of a major supplier can indicate supply chain risk.

Legal Risk

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

How Can Technology Aid in Screening Negative News?

Organizations can harness technological advancements, such as AI-driven tools and Natural Language Processing (NLP), to analyze massive amounts of global data. These technologies allow companies to proactively identify and mitigate potential risks almost in 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?

Several regulations and guidelines either recommend or require organizations to conduct negative news screening to manage associated risks. Key examples include:

Anti-Money Laundering (AML) Regulations

AML regulations mandate that organizations, especially financial institutions, perform due diligence on their clients and partners to prevent money laundering and terrorist financing. This involves screening for negative news related to potential clients and associated parties.

Know Your Customer (KYC) Requirements

KYC regulations, enforced globally by financial regulators, require organizations to verify customer identities and assess the risks of their business relationships. Negative news screening is a crucial component of the KYC process, helping to uncover adverse information or associations.

Sanctions and Embargoes

Governments impose sanctions and embargoes on individuals, entities, or countries for political, security, or economic reasons. Organizations must screen their business partners and clients against sanction lists and monitor for any negative news associated with 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 safeguard personal information. Negative news screening is essential for identifying potential breaches or security incidents that could jeopardize data protection.