Steps to Conduct an Effective Risk Assessment Process

Blog / Steps to Conduct an Effective Risk Assessment Process


One of the most trending topics of all time in every industry does not change: The Risks. Each sector has its own hazards and challenges at different levels. Also, they have strategies or rules to be prepared and fight with them. Although the risks are variable according to the many determinants such as industry, company size, location, or time, awareness of them comes at the very first step regardless of other determinants. At this point, an efficient breach determination and risk assessment procedure take the stage to recognize risks. So, what is a risk assessment, and how to conduct a comprehensive and efficient risk assessment procedure?

Risk assessment in the AML industry is a procedure that helps companies understand what conditions increase the chances of a customer's involvement in money laundering or terrorist financing. Authorities expect companies to proactively combat money laundering and terrorist financing. This is the first action they must tackle for comprehensive AML compliance. It might be impossible to eliminate all the risk, but the responsibility is to reduce its potential.


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Why Should Companies Evaluate the Risks?

There is no exit way from regulations of AML compliance if a company is working in the related fields. However, company owners and management teams must give importance to this not just because of regulations but also to protect their companies’ safety. Today, it is beyond a legal duty to comply with local or international AML/CFT rules.

The range of the risks changes according to:

Company size and sophistication of the business

Number of customers

Companies' KYC procedures

Number of third parties working together with

Amount of money that the firm manages

Location and Currency

Location of customers and third parties etc.

Considering all, there are several reasons that make assessment crucial for firms:

Establish a stronger AML compliance program

Identify the risk level of your company

Determine and eliminate high-level risky customers

Work with a risk-based approach to prevent a company from AML-CFT risks

Specify sources and set a protection procedure against them



Risk Assessment Steps

Potential harms threaten the company with financial and reputational consequences. They might lose money because of criminal activity and then as a fine resulting from AML compliance regulations. After that, the company might lose credit in the eyes of customers and competitors in the market. Whereas being prepared against them is easier than coping with those consequences. There is a risk assessment matrix as an example for your businesses below. 

A beneficial risk assessment requires following these steps;

Evaluate the risks: they are hazards that possibly result in financial crime

Determine the levels, how likely it is, and how severe the outcomes: this step makes easier to trace activities and focus on high risks

Reduce the risk with a strong customer onboarding process: if a firm follows an effective Know Your Customer program, this helps to eliminate potential risks

Decide on the precautions: there must be a strategy to follow when a risky action is detected

Record data of customers, transactions, and findings: they all might become necessary for reporting and comparing with recent data. For example, firms must send a Suspicious Activity Report (SAR) to the National Crime Agency in the UK if they detect one.

Regularly review assessment procedure and update: the world changes faster than ever with technology, and companies must catch the improvements and updates in regulations or lists 

In addition, having an assigned employee or a team to imply these procedures is significant. If your company has one, these can be the same people as compliance employees or teams. Because this is a constant program, it requires following and updating from time to time. Also, companies must take immediate action when they face high-level risks during or after evaluation. If the duty is not assigned to someone, the possibility of missing risky conditions increases.




How to Deal With Risk Assessment Procedure?

Risk management gets easier if a company applies a complete evaluation procedure. Once the potential and hazards are identified, officials can focus on high-risk customers and activities without wasting time with countless of them.

If the assessment process is seemed difficult, there is no need to worry with recent technological developments. Sanction Scanner provides software products for companies in financial services to evaluate their risks and then manage the whole operations accordingly.

Customer Risk Assessment Solution help companies to;

Easily set risk criteria and rules

Determine customers’ risk levels according to your own indicators

Have scorecards for each customer

Manage alerts with different risk levels

Simplify Risk Assessment with Sanction Scanner

Strengthen your business with greater control compliance with risk-based scorecard review.




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