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Client screening definition and meaning | AML glossary

What is client screening? Definition and AML compliance meaning.

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Client screening definition: What it means in AML compliance.

Client screening is the process of verifying and assessing potential and existing customers to identify risks associated with financial crime. This means checking their identities, assessing their backgrounds, and determining if they pose any risks linked to money laundering, fraud, corruption, or sanctions breaches.

It’s about knowing exactly who you’re dealing with and identifying red flags before they become serious problems. 

Businesses can face heavy penalties, reputational damage, and even legal consequences if they unknowingly engage with sanctioned individuals or entities involved in illicit activities. Screening clients at the onboarding stage and throughout the business relationship helps identify suspicious activities early and prevents regulatory breaches.

Client screening typically involves cross-referencing customer details with databases such as sanctions lists, politically exposed persons (PEPs) lists, and adverse media reports. It also involves ongoing monitoring to detect changes that may indicate increased risk. 

How client screening works in practice.

Screening starts at onboarding, where identity verification and background checks are conducted. This means verifying a customer’s name, date of birth, address, and other identifying information against official records. Businesses must also assess the ownership structure of companies, checking for hidden connections to high-risk individuals or jurisdictions.

PEP screening is another critical element. A politically exposed person – such as a government official or a close associate – presents a higher risk due to their potential access to state funds or involvement in bribery or corruption. Understanding these risks allows compliance teams to apply enhanced due diligence (EDD) where needed.

Sanctions screening ensures that individuals or entities subject to financial restrictions imposed by governments or international bodies are not engaged in financial transactions. Failure to spot a sanctioned individual can lead to hefty fines and significant regulatory consequences.

Adverse media screening involves scanning publicly available news sources to identify any negative reports about a client. This can highlight involvement in financial crime, fraud, or unethical practices that might not yet be reflected in official records.

Why client screening matters for compliance teams.

For businesses operating under UK Anti-Money Laundering (AML) regulations, client screening is a fundamental requirement. The Money Laundering Regulations (MLR) set out obligations for firms to conduct risk-based due diligence, which includes thorough client screening. This process is designed to stop criminals from abusing financial systems for illicit gain.

Regulated businesses must apply a risk-based approach, meaning they should assess each client’s risk level and tailor screening measures accordingly. High-risk clients, such as those operating in high-corruption jurisdictions or dealing in cash-intensive businesses, require enhanced due diligence. This may include deeper investigations into their sources of wealth and ongoing monitoring of transactions.

One of the biggest challenges in AML compliance is dealing with false positives – where legitimate customers are mistakenly flagged as high-risk due to name matches on screening databases. Efficient compliance teams use fine-tuned screening tools to reduce unnecessary alerts while still capturing genuine risks. 

Keeping up with regulatory changes is another ongoing challenge. The AML landscape is constantly evolving, with sanctions lists updated frequently and new risks emerging. Compliance teams must stay informed, regularly reviewing screening processes to remain compliant with the latest regulations.

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