Beyond Traditional Algorithms: Leveraging LLMs for Accurate Cross-Border Entity Identification
This work addresses the need for improved entity matching in the Spanish financial system to enhance risk management and regulatory compliance, representing an incremental improvement over existing methods.
The paper tackled the problem of accurately identifying cross-border entities in financial systems by evaluating traditional algorithms and Large Language Models (LLMs) on a dataset of 65 Portuguese company cases, finding that interface-based LLMs achieved accuracies above 93%, F1 scores exceeding 96%, and significantly lower false positive rates (40-80% reduction).
The growing prevalence of cross-border financial activities in global markets has underscored the necessity of accurately identifying and classifying foreign entities. This practice is essential within the Spanish financial system for ensuring robust risk management, regulatory adherence, and the prevention of financial misconduct. This process involves a labor-intensive entity-matching task, where entities need to be validated against available reference sources. Challenges arise from linguistic variations, special characters, outdated names, and changes in legal forms, complicating traditional matching algorithms like Jaccard, cosine, and Levenshtein distances. These methods struggle with contextual nuances and semantic relationships, leading to mismatches. To address these limitations, we explore Large Language Models (LLMs) as a flexible alternative. LLMs leverage extensive training to interpret context, handle abbreviations, and adapt to legal transitions. We evaluate traditional methods, Hugging Face-based LLMs, and interface-based LLMs (e.g., Microsoft Copilot, Alibaba's Qwen 2.5) using a dataset of 65 Portuguese company cases. Results show traditional methods achieve accuracies over 92% but suffer high false positive rates (20-40%). Interface-based LLMs outperform, achieving accuracies above 93%, F1 scores exceeding 96%, and lower false positives (40-80%).