Anti-Money Laundering (AML) Risk Assessment

Overview of AML Risk Assessment

Actions that show crime assets as income from a legitimate source to hide the illegal source of money are called money laundering. With the development of technology, money laundering events are increasing. Therefore, it becomes more and more critical for businesses to measure the possibility of money laundering or terrorism financing. At this point, businesses need Money laundering (AML) Risk Assessment, an analytical process applied to a business to measure the possibility of money laundering or terrorist financing.

The AML Risk Assessment carries out this process by identifying places where money laundering is the easiest in business and those who want to finance terrorist activities. This security process is usually called Key Risk Indicators (KRI). Besides, countries, banks, authorities, and many financial sectors need risk-based approaches to understand and evaluate the risk of money laundering and terrorist financing. Many of the sanctions currently imposed by banking regulators contain provisions that require improvements in risk management programs for AML and The Office of Foreign Assets Control (OFAC) compliance. The starting point of the strong AML risk assessment program should be an accurate and comprehensive AML / OFAC risk assessment in business.

Why Is AML Risk Assessment Required?

Conducting the AML risk assessment in a business will help you:

  • Developing policies, procedures, and controls to reduce the risk of money laundering,
  • Apply a risk-based approach to detect and prevent money laundering
  • Understand the level of risk associated with individual business relationships and transactions
  • Making appropriate risk-based decisions about customers and employees
  • Identifying risk sources and evaluating risk reduction controls
  • Running successful AML / OFAC compliance programs effectively. 
  • The money laundering risk rating within a country.

It is also important to review your AML Risk Assessment to make sure that your Solicitors Regulation Authority (SRA) may want to see your assessment of your business, your business will not go wrong with compliance and also best know compliance meaning.

What Are The Key Risk Indicators in Money Laundering?

The key risk indicators for global governments are:

  • The nature and size of a business,
  • Customer types,
  • Types of products and services offered to customers,
  • Method of hiring new customers and keeping in touch with existing customers
  • Geography risks

The money laundering risk assessment requires defining the key risk indicators mentioned above, measuring risk factors, and allocating the findings to a risk range. The alternative risk range should generally be five levels; Very Low, Low, Medium, High, and Very high values should be used. The findings of the money laundering risk assessment will result in individual risk scores for each KRI, as well as the total risk score, which is the compound or general risk offered by the business.

AML Risk Assessment Throughout the Application

During the risk assessment throughout the application, the following issues should be made;

  • Reference should be made to the policies, controls, and procedures of businesses.
  • Britain's National Risk Assessment (NRA) and SRA's 2018/19 risk outlook
  • Steps taken by businesses should be listed to reduce the risk of money laundering faced by businesses.
  • When a high-risk customer is identified, the action should be clearly stated.

Assessment of High-Risk Activities

It should be evaluated how much of the studies conducted in Aml risk assessments are defined as high risk. Especially those defined as high risk by NRA are important. NRA describes trust and company formation, conveyancing, and customer account services as the highest risk activities. In order to reduce the risks that may occur while working in these areas, the latest valid AML guide in the industry should be followed, and the warning signs of AML should be observed. Finally, businesses should document the measures they take to mitigate these risks and adjust their policies and controls accordingly.

Risk Assessment in Customer Onboarding Process

Customer risk definition is a customer's money laundering risk that depends on customer and company relationships. This risk can be defined as risk detection of the segmentation that risk perceptions of the customer's profile. Customer risk assessment is needed when the customer performs an action that provides no parallel to their profile. Implementation correctly of customer risk assessment has excellent significance for minimizing risk.

Accordingly to Customer Due Diligence procedures, companies have to implement risk assessments for their customers. The most common method used for risk assessment is sanction, PEP, and adverse media screening. With the development of technology, manual risk assessment methods lost their function and created a waste of time. Our product, AML Name Screening Software, provides sanction, PEP, and adverse media screening service. You can contact us to meet your AML and KYC obligations during the customer onboarding and monitoring process with Sanction Scanner.

How did Papara implement the risk assessment to its customers with Sanction Scanner?