FFIEC BSA AML Risk Assessment AML Risk Assessment

When considering risk factors, remember all businesses are different and what might be a high-risk activity for one company may not be so risky for another company. It really depends on your business, your appetite for risk and capacity to deal with complex situations. While a client may look low risk, they may be using a service you provide which has a potential high risk. For example, if you provide address services for the set up of a new business there is the potential to create anonymity which could be used to facilitate money laundering.

Companies should implement risk assessments for their customers according to regulators. Annexes to this document contain additional information relating to money laundering / terrorist financing risk assessments. In addition to the annexes contained in the report itself, the IMF and the World Bank provided the following.

The 6 Steps of an AML Risk Assessment

The use of technology in building risk assessment methodologies and processes assists financial institutions in complying with the latest AML/CFT regulations. That includes compliance with the implementation of adequate internal preventative and detective control standards, and a proper self-evaluation surrounding the effectiveness of these controls. The nature of your products and services helps dictate the level of risk for money laundering in your organization.

Activities in higher-risk geographies will require you to increase your controls and due diligence measures. On the other hand, regions that do not pose as large of a threat may not need as strict monitoring measures. Analyzing your geographical risk involves looking at the footprint of your organization. Consider the areas where you conduct business, the size of those populations, and the people that live there. Ensure that you have the appropriate number of staff available and that they have adequate training. The chief compliance officer will manage the training program and determine the qualifications the staff should have.

Customer Due Diligence

Therefore, in an environment so fraught with fraud, going beyond the regulated assessment requirements is recommended. As we have discussed in previous blogs dedicated to KYC compliance, what Is AML risk assessment embracing a digital transformation strategy is a must. Meanwhile, if your client is a business entity, ask yourself who ultimately controls or benefits from their activities?

For example, do you operate in an area where there are higher rates of drug trafficking? To be thorough, confirm geographic risk through a list from the FATF or other such organizations. While completing an AML risk assessment is necessary to comply with regulations, understanding the risk level of each client and transaction also protects your business and your reputation. We also continue to see a minority of firm wide risk assessments which we deem to be non-compliant or partially compliant.

AML & Your Business

An effective sanctions risk assessment (SRA) measures the inherent sanctions risks a financial institution is exposed to and the effectiveness of its risk controls. Each area of sanctions risk should be allocated an inherent risk rating and control effectiveness should also be rated. As part of an onboarding risk assessment, customers should be vetted for money laundering and terrorist financing risk factors. This process should include screening for adverse media, sanctions, and politically exposed persons (PEPs).

Given estimated annual flows approaching 3% of global economic output, increasingly aggressive AML enforcement can at best aim to contain money laundering rather than stop it entirely. Money launderers never seem to run short of money or accomplices, though AML measures certainly make their lives harder. Customer due diligence is integral to the KYC process, for example by ensuring the information a potential customer provides is accurate and legitimate.

How To Conduct An Effective KYB Procedure

As reporting entities we have a responsibility to help prevent money laundering and done right, risk assessment can be an effective tool in your compliance armoury in helping identify, measure and prioritise the risk of criminal activity. An AML risk assessment is a key component of any AML tool kit, enabling businesses to measure the likelihood that a customer or client is involved with money laundering or terrorist financing. An AML risk assessment will measure the risk level of each client, performing due diligence to minimize any potential involvement in a money laundering scheme.

You may include this as part of your firm wide risk assessment or you may create a stand alone document. The purpose of a firm wide risk assessment is to help you identify the money laundering risks your firm is, or could be, exposed to, and consider how any risks could be mitigated. Essentially, it will help your firm to take a risk-based approach to preventing money laundering.

AML Risks – Geography

After playing through different scenarios/potential events, it is essential to set controls to ensure that risk mitigation activities are carried out. Most of the time, it is done by the compliance officer during regular compliance checks. After taking risk mitigation actions and instituting controls, it’s the remaining risk to alter the risk’s probability and impact.

• We are dedicated to improving the compliance of businesses in UAE with all the relevant anti-money laundering consulting services and combating the financing of terrorism with the proper enforcement of rules and regulations in the organization.
• Without a plan in place, you risk the reputation and financial health of your company.
• You document each step, so you can prove to government officials that you take money laundering very seriously.
• Having a firm wide risk assessment in place will also help you to develop appropriate policies, controls and procedures.
• Inherent risk represents the exposure your business will have to money laundering risk should you not put any processes in place to mitigate them.