Two Thirds of Organisations Still Use Manual Search for Compliance with Trade and Export Controls
August 2021 by Accuity, a LexisNexis®
Two-thirds of banks, corporations and non-banking financial institutions (NBFIs) still use search engines to comply with trade and export compliance regulations, according to Accuity, a LexisNexis® Risk Solutions company and a leading global provider of financial crime screening, payment services and know your customer (KYC) solutions. Manual search leaves organisations open to missing red flags and making misinformed decisions over whether to accept business. This can expose them to risk and potential regulatory action and may also result in missed opportunities to participate in safe and legitimate trade transactions.
Trade finance providers, as well as insurers, logistics firms and others involved in international supply chains are responsible for conducting due diligence on the parties and items involved in the transactions and shipments they facilitate. This includes verifying the legitimacy of the customer and all parties to the transaction, checking for dual-use or controlled goods (for example, those that could have a military purpose) and ensuring funds and goods are not going to or coming from a sanctioned location.
The trade compliance survey – conducted by Accuity during the first half of 2021 – questioned more than 120 professionals from leading banks, insurance and fintech organisations operating in APAC, EMEA and the Americas. The study shows how widespread manual search remains even years after the emergence of automated solutions to detect trade compliance risks, such as sanctioned entities and dual-use goods.
Key findings from the research:
● Trade compliance is not always handled by a dedicated team: Banks are managing trade compliance mostly through a dedicated compliance function. Non-banking financial institutions (NBFIs) are handling it as part of the KYC process and corporations as part of a central compliance function or general operational team.
● Multi-variable screening is mostly limited to banks: More than 90% of banks screen for five or more data points, including sanctions, goods, vessel names and ultimate beneficial owners (UBOs), compared to only a third of non-banks.
● Challenges posed by changing regulation: The biggest challenges for banks and corporations are keeping up with rapidly changing regulations and increasing expectations, while NBFIs find document-heavy processes the biggest burden.
● Efficiency gains planned: Sixty percent of firms revealed that they plan to invest in the integration/interconnectivity of systems, with 74% looking to improve data sharing and transparency.
● Compliance as an advantage: Competitive advantage is seen as the main benefit of trade compliance. Corporations reported less concern over fines, while prioritising improving the flow of business through smarter licence management.
Accuity customer Enas Hamed, Sanctions Unit Head at the Housing Bank for Trade and Finance in Jordan, said, “We have prioritised digitising and automating our process for screening trade finance transactions against local and international sanctions lists. In doing so, the bank increases its efficiency levels by cutting down on time spent processing and screening potential transactions manually, while simultaneously allowing for a clear audit trail and increased effectiveness in its dealings with both regulatory bodies and its customers.”
Aneta Klosek, director, trade compliance, at Accuity said, “Trade compliance is a critical function where mistakes can cost businesses millions. An area where the smallest omission can throw off the entire strategy of a business is no place to take a chance. On the other hand, the study has shown that getting trade compliance right can produce a significant competitive advantage, so there is every reason for firms across the breadth of the supply chain to make this a focus. We are seeing more banks and other organisations turn to comprehensive data and technology-enabled solutions to ensure their compliance framework is absolutely watertight – and they have flourished throughout the pandemic as a result.”