An organization’s risk assessment does not necessarily have to be overly complex, but should be in line with the nature and size of the organization, its business model, and related products and services.
For smaller or less complex organization or small financial institutions and banks a very basic or rather simple risk assessment might suffice. For example, this might be the case for a small bank, where the bank’s customers fall into similar categories or where the range of products and services the bank offers are very limited. On the other hand, where the bank’s products and services are more complex, where there are multiple subsidiaries or branches offering a wide variety of products, or their customer base is more diverse, a more sophisticated risk assessment process will be required.
Factors for the risk assessment
For identifying and assessing the money laundering risk to which organizations are exposed, banks should consider a range of factors which should include the following:
- The nature, scale, diversity and complexity of their business
- An organizations target markets
- The number of customers already identified as high risk
- The jurisdictions the organization is exposed to, either through its own activities or the activities of customers, especially jurisdictions with relatively higher levels of corruption or organised crime, or deficient country-level anti-money laundering measures
- The distribution channels, including the extent to which the organization deals directly with the customer or the extent to which it relies on third parties to perform AML measures
- The internal audit and regulatory findings
- The volume and size of its business activities such as transactions, considering the usual activity of the organization and the profile of its customers.
Standard-setting bodies such as the Wolfsberg Group also have guidance available on their website that might support in the creation of an effective and holistic money laundering risk assessment.
Organizations should complement this information with information obtained from relevant internal and external sources, such as heads of business, relationship managers, national risk assessments, lists issued by inter-governmental international organisations and national governments, as well as commonly known money laundering typologies. Organizations should also review their assessment periodically, for example on an annual basis, and in any case when their circumstances change, or relevant new threats emerge.
The risk assessment should be approved by senior management and form the basis for the development of policies and procedures to mitigate the money laundering risk, reflecting the risk appetite of the organization and stating the risk level deemed acceptable. In this regard, and organization should also make sure that, policies, procedures, measures and controls to mitigate the money laundering risks should be consistent with the risk assessment.
Let’s make a few money laundering risk examples in the financial services industry, which refers to banks and financial institutions in particular.
In retail banking, main areas of the money laundering risk may lie within the provision of services to cash-intensive businesses, the volume of transactions and high-value transactions, and in the diversity of services.
In wealth management, main areas of the money laundering risk may lie within the culture of confidentiality, the difficulty to identify beneficial owners, a potential concealment through the use of offshore trusts, banking secrecy, the complexity of financial services and products, and high value transactions.
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