Disruption through harmonisation: a new era for sanctions screening

‍Does slow and steady win the race?

The financial services industry has been slow to adopt new technologies, largely because it relies on legacy infrastructure which thwarts innovation.

Over the past ten years, most businesses and governments have partially migrated to the cloud, whereas banks have taken a more cautious approach. Faced with potential fines by regulators, and systemic challenges, it makes sense for banks to treat technology hesitantly and cautiously, given the potential risks involved.

Banking CEOs affirm that their companies have a slower uptake when embracing innovation: in 2020, 81% were “concerned about the speed of technological change”[1]. This affects all aspects of banking, and it is especially noticeable when it comes to cross-border payments, where multiple complex systems need to line up for payments to be processed efficiently.

According to the Bank of England’s guidelines, “in some instances, a cross-border payment can take several days and cost up to ten times more than a domestic payment.” 

Moving the finish line

But the financial industry is also ambitious. Banks are constantly searching for ways to optimise their services and processes, despite the complicated maze of national, regional, and international regulations they must navigate. Worldwide financial authorities and industry bodies know that systems need to evolve, and they are pushing for a better-connected, safer, and integrated market.

There’s also a growing expectation for instant international payments from consumers. The Financial Stability Board (FSB) has set targets to improve the cross-border payments process by 2027, making it faster, cheaper, more accessible, and more transparent.

The goal is to modernise a cross-border payment system still weighed down by controls over currency and regulatory compliance, a fragmented market infrastructure, and the individual systems of all banks and intermediaries involved.

One of the most significant barriers to instant cross-border payments is the requirement to check payers and payees against multiple sanctions lists. Every bank in the payment chain, including various intermediaries involved, is mandated to carry out sanctions compliance checks before any money can be transferred cross-border.

The need for controls like these is evident. However, the current model could be more efficient, as each bank uses different standards and technologies for matching names and details. This can result in numerous false positives and create friction for businesses and consumers.

With so many actors involved and no unified systems, how will the industry achieve the goal set by the FSB?

Disruption through harmonisation

Financial institutions compete on many fronts, but compliance within financial crime and sanctions regulations is not a race where they’re set against each other. Banks are responsible for making their screening processes more efficient and effective, so they don’t delay payments for consumers and businesses.

Individual banks can’t improve the global payments system alone. A genuinely disruptive solution that has the power to innovate the sector at an international level can only come from a new approach: a cooperative one.

When financial institutions choose a unified, harmonised strategy, they can work together towards the same goal. This creates a beneficial network effect, where the rising tide of better standards and suitable solutions will lift all boats in the global financial system. Ultimately, consumers and businesses worldwide will feel the time and cost benefits.

This was the vision of GSS’ founders, a group of experienced financial services practitioners who believe in the power of positive change. They would lead financial institutions through the cooperative path, helping them to clarify their shared expectations, align their processes, and agree on harmonised higher standards. 

On the foundations of this unified approach, GSS would develop technologically innovative solutions to remove friction from the global payments system.

Creating common standards

Many financial institutions have the same pain points regarding sanctions screening, which is how GSS enabled over 25 banks to work together to agree on common standards for sanctions screening, the GSS Standards.

GSS’ direct experience facilitating a partnership between financial institutions on something as specific and complicated as sanctions screening shows how important it is for the right people from competing organisations to come together.

Convincing banks to work together was only the first step. Gaining their trust was imperative, and this was achieved thanks to our team’s collective experience, well-developed networks, and knowledge of the sector. 

GSS wasn’t the first organisation to try this approach – but it’s the first company that succeeded in drafting new industry standards for sanctions screening.

After two years of work, with the sanctions screening standards agreed upon by banks and reinforced by positive guidance from global financial regulators, GSS is ready to launch with its first clients later this year. 

We’re guiding them towards the finish line – a more efficient and frictionless sanctions screening process delivered via state-of-the-art technology on our cloud-based GSS Platform.

We plan to show all financial institutions who believe in harmonisation that smart collaboration is the key to completing the race. When harmonisation works, it has the power to disrupt the status quo.

This article was first published on the Financial Technologist Read the Financial Technologist here.