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News

Data screening false positive reduction brings cost benefits

Datanomic : 17 November, 2009  (Technical Article)
With the use of smarter data matching rules when screening financial services clients can save organisations considerably through the reduction of false positives
Reducing the instances of False Positives when screening client data against risk registers can reduce costs by as much as 70%, yet few screening solutions provide support for the review of potential matches and even fewer remember the decisions that are made, according to compliance screening and data management specialists, Datanomic.

Every occurrence of a client record matching to a name on a sanction, risk or PEP register has to be investigated by the regulator; the review and research of false positives costs institutions time and manual effort. "Fuzzy" techniques are essential to find inexact matches, but they often produce large numbers of records for review and the vast majority of these will be false positives. With some institutions swamped by the volume of false positives, the temptation to tighten match rules can be irresistible. Whilst this might reduce the immediate pain of so many false positives, it often increases the probability of a more insidious risk, that of false negatives where a genuine threat to the organisation is not identified. Although false positives cost time and effort, false negatives allow criminals access to the financial system and can result in fines for the institution, the individual MLRO, as well as a loss of commercial reputation.

Simon Pearson, Vice President, Compliance Screening at Datanomic commented, "With the correct screening tool, it is possible to reduce the number of False Positives by deploying appropriate matching technology and business rules without letting a false negative slip through the screening process. Fuzzy matching techniques can help to identify matches, but none of them should be used exclusively. Rather, combining them into a match pattern allows for greater precision and accuracy. We also recommend a rules template to provide a fast start position, but it is essential that firms have the ability to tune the rules for their data and risk profile."

Whether a review tool is included as part of the screening solution or not, the MLRO must be able to record an audit trail about every manual decision. This should include a note of who made the decision, when it was made, the information they had available from the client data and risk register, plus any supporting notes for their decision. An integrated review tool should incorporate this audit trail in an automated fashion.

The use of multiple identities is common in the criminal world and Al-Qaeda's own training manual requires its operatives to use false identities to hide their terrorist activities. Exploiting variations of a criminal's real name is, perhaps, the simplest way of acquiring a new identity. Typical approaches are to use name variations (e.g. Robert using Bob, Bert or Bobby), or switching the order of names so that Thomas Howard becomes Howard Thomas and James Richard Smith becomes Richard James. Other data, such as dates of birth may also be simply manipulated by transposing digits, so that 12/11/1956 becomes 11/12/1965. Commercially available risk registers include known pseudonyms, but MLROs need a reliable way of applying these to their data and the ability to identify manipulated identities that have not previously been recorded.

Industry-leading accuracy and Datanomic's unique 'Decision Intelligence' drive down compliance costs by reducing the burden of false positives by up to 70%. End-to-end data preparation, case management, workflow, auditability and reporting tools ensure that businesses are protected from compliance risk.

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