The risk based approach to anti-money laundering (AML) and terrorist financing (TF) is embedded in UK anti-money laundering legislation through the integration of the 5th Money Laundering Directive (5AMLD). It is endorsed by the Financial Action task Force (FATF) who provide regulators with guidance as to how to implement a risk based approach to their own activities. A risk-based AML/TF process is therefore vital for all regulated businesses.
Implementing a Risk Based Approach
1. Assess your Risk
The first step to ay robust AML /TF compliance strategy is to understand and categorise (high, medium, low) risk posed by different customers across categories relevant to the business for example:
- Customer risk – Who are your customers? Where are they based? What links do they have to high-risk jurisdictions
- Location – Where do you operate? What are the risks inherent in the market?
- Channel Risks – How do customers find you? Does this increase risk?
- Product / Service risk – What are the risks of money launderers abusing some or all of your services?
2. Document, Review and Document Again
Process adopted by your firm should be documented. This helps you:
- Regularly review your processes as new risks emerge
- Keep AML due diligence records available for future review
- Provide evidence at regulatory audit
3.Be Forensic
Your process should be wide ranging. Not all AML/TF risks are obvious. Your AML/TF process should understand your client’s business network and any individual associations that may pose additional risks. Consider:
- The type of customer (individual/corporate/trust)
- Where they are based
- Where do your client’s operate
- The nature of your relationship with the client
You should also risk assess your own intermediaries for any risk posed in the client’s they introduce to you.
4. Control / Ownership
Who is in control of your client? When dealing with individuals check for links to other individuals or companies that pose an AML/TF risk.
Where the client is a company or trust look for beneficial ownership and any person with significant control that poses additional risk. Is the company based in a high-risk or secrecy jurisdiction. Check who owns the company and identify the entire corporate or trust structure.
Is there any political exposure? Is the client high net worth?
When dealing
You must have a process to refer clients that pose a higher risk of AML/TF financing for additional checks and scrutiny.
5. Adopt Effective AML/TF procedures
Once you understand the AML/TF risks your firm faces you should adopt a set of procedures that effectively deal with and mitigate the risks. These must be documented and available to your staff to implement as well being provided to your regulator to demonstrate that effective procedures have been followed.
6. Train Yourself and Your Staff
Training yourself and your staff to recognised the many and varied risks of AML/TF faced by your firm is perhaps the most important aspect of an effective regime. Knowing how to recognise money laundering and terrorist financing will help the front line build a picture of the true risk posed by a transaction, individual or entity.
7. Use Technology
The use of technology is vital in the AML/TF process. There are a wide number of checks such PEP, Sanctions or adverse media that must be undertaken with data t be gathered from a large number of sources. 70% or more of the MAL process is completed by a person and you need to understand whether searching individual lists are an effective use of their time and your resources. Automate where you can. There are a large number of high quality suppliers of data on the market. Choose one that fits your needs and release your staff to spend time on the high -risk transactions and improve your client experience where you do not need to allocate resource.
Implementing a risk based approach allocates resources and time where they are needed assessing and mitigating high-risk transactions. It shows a deep understanding and commitment to the money laundering regulations and the fight against financial crime all of which stand in good stead for regulatory audits.
How LondonCDD can help
LondonCDD is the Prime Property AML specialist. We can help you with a complete outsourced AML compliance solution. Complete your Firm AML risk Assessment, design AML Policies and Procedures and undertake client due diligence on a transaction level.
LondonCDD can complete your staff training, and advise on the right technological solution for your firm.
To find out more about how LondonCDD can help your firm contact us here
