False positives in sanctions screening remain one of the most persistent and costly challenges in financial crime compliance. They occur when legitimate customers or transactions are incorrectly flagged as potential sanctions matches, forcing compliance teams to investigate activity that poses little or no real risk.

For banks, fintechs, and payment service providers, false positives are not just an operational inconvenience. They directly affect customer experience, regulatory confidence, and the ability to focus resources on genuine financial crime risk. Regulators expect strong sanctions controls, but they also expect those controls to be proportionate, explainable, and defensible.

What The Challenge Is

A false positive in sanctions screening occurs when a screening system identifies a match between a customer or transaction and an entry on a sanctions list, but further investigation confirms that the match is not valid. Despite posing no real sanctions risk, each alert still requires analyst review, documentation, and closure.

In many institutions, false positives account for the overwhelming majority of sanctions alerts. This creates a structural inefficiency where compliance effort is consumed by low-risk activity rather than true exposure.

Why It Exists

False positives exist because sanctions screening is intentionally conservative. Firms are expected to minimise the risk of missing sanctioned individuals or entities, which often leads to broad matching logic and low alert thresholds.

Additional drivers include inconsistent customer name data, limited contextual information at the point of screening, linguistic variation, and screening engines that rely on static rules rather than adaptive risk assessment. As global sanctions regimes expand and update more frequently, these issues become more pronounced.

Operational Impact

High false positive volumes place sustained pressure on compliance operations. Analysts spend significant time reviewing low-risk alerts, which slows payment processing, delays onboarding, and increases operational cost per alert.

Over time, this environment contributes to analyst fatigue, higher error rates, and difficulty retaining experienced staff. More importantly, it reduces the capacity of compliance teams to focus on genuinely high-risk sanctions exposure, increasing residual risk.

Why Legacy Approaches Fail

Legacy sanctions screening systems are typically rule-based and threshold-driven. They rely on simplistic name matching techniques and treat all alerts as equally important, regardless of contextual risk.

These systems rarely incorporate feedback from previous alert decisions and often lack transparency around why a match was generated. As a result, tuning becomes reactive, manual, and difficult to justify during regulatory reviews or internal audits.

What Effective Sanctions Screening Looks Like

Effective sanctions screening balances sensitivity with precision. False positives are reduced without compromising coverage, and alerts are prioritised based on confidence, context, and risk.

Decisions are explainable, consistent, and supported by clear audit trails. This allows firms to demonstrate control effectiveness to regulators while maintaining operational efficiency and a positive customer experience.

How It Can Be Solved (Process And Technology)

From a process perspective, firms need strong governance around alert tuning, clearly defined escalation paths, and regular performance reviews that measure both coverage and accuracy. Sanctions screening should be treated as a continuously optimised control, not a static rule set.

From a technology perspective, modern approaches combine high-quality watchlist data, contextual enrichment, adaptive matching techniques, and learning feedback loops. Capabilities such as those used in Watchlist Management support more precise screening outcomes while maintaining regulatory confidence.

Learn More

To explore related topics, read our explainer on Sanctions Screening and our blog on improving watchlist data quality. You can also review regulatory expectations on sanctions controls published by organisations such as the Financial Action Task Force and the UK Office of Financial Sanctions Implementation, which outline the importance of proportionate and risk-based screening controls.