The first risk assessment recommendation from the FATF in 2012 was the breakthrough of making the AML risk assessment complimentary for financial institutions. And FATF isnt the only in this list, there are many other regulatory bodies that also make it compulsory for the financial institution to conduct risk based approaches such as the Bank Secrecy Act (BSA).
The ultimate goal of making the AML risk approach necessary for financial institutions is quite simple and straightforward: to detect and prevent their customers from engaging in any type of money laundering.
In this blog, we will discuss the best ways to conduct the AML risk assessment within an organization, that is helpful in detecting money laundering and terror financing.
What’s new about AML Risk Assessment?
AML Risk assessment works like a helping hand for financial institutions, helping them detect any chances of their customers’ involvement in financial crimes at an early stage of the customer relationship. Businesses always ensure that they are not being used for financial crimes by their so-called customers. Therefore, what they must implement in theri compliance prorgam is conduction of AML risk assessment method .
Draw The Line Between Customer Risk Assessment & Aml Risk Assessment
When we talk about the AML risk assessment, we are talking about the broader term of risk assessment. What makes it a broader term? Here, broader means the assessment of everything that can help businesses detect money laundering activities easily. Financial institutions analyze each customer’s behavior, transaction history, and other relevant information to determine how likely they might be involved in money laundering. If they determine that any of their customers are involved in such a crime, they first assess the risk the individual can pose to their institution and put him in the risk category based on the initial assessment.
Why are AML risk Assessments essential for financial institutions?
The financial institutions, whether banks or other organizations that deal with money transactions are by law required to implement risk-based assessment regulations within their institute to identify and mitigate the chances of money laundering through your platform. As the importance could be measured by the money laundering performed by the PEPs, the sanctioned person usually uses the financial channel to move their illicit money to other destinations. So, considering the threats and fears banks can face in the money laundering process, regulatory bodies necessitate the banks to conduct the AML compliance program.
4 best ways to perform an AML risk Assessment for financial institutions
Regulatory bodies do not spare any organization, particularly the financial institution if they fall short of their compliance program. We have observed that despite implementing all the necessary compliance programs, financial institutions still fall into the trap of money laundering. The reason could be less understanding of the process, so companies need to understand how they should conduct AML risk assessment within their organization before implementing the process.
- Identify Key Indicators of Risk
For a comprehensive and reliable risk assessment approach, start by documenting all the necessary key risk indicators, particularly those directly or indirectly associated with your organization. While making the documentation, do not leave anything unturned, even your compliance team’s thought process. As the challenges to identifying the risk assessment evolve, it will help you make wise decisions.
- Hire dedicated staff
It does not matter how big or small an organization you run but how dedicated and skilled staff members you hire for the AML compliance program. Financial institutions need to understand that the success rate highly depends on the compliance team’s credibility, so before hiring the members, make sure they have the required skill set.
- Risk Identification
For instance, think about a company that is not fulfilling the compliance program set by the regulatory bodies. In that case, the higher chances of interacting with the people who use your platform for money laundering and other financial crimes are known as the inherent risks. However, proper identification of key risk indicators during documentation can help you identify the risk and take steps to mitigate its chances.
- Identification of Risk Level
Risk scoring is another way of analyzing an individual customer’s potential risk. Based on the identification of the risk, it must be identified as high risk, moderate risk, or low risk. The higher risk means you need to allocate more attention and resources to it so that the chances of being exposed to any criminal activities could be mitigated.