Anti-Money Laundering (AML) Risk Assessment

Overview of AML Risk Assessment

Money laundering is sneaking money obtained illegally into the financial system to use it effectively. Criminals started finding new ways to launder money as technology advanced in recent years. Therefore, companies should take more steps to detect and fight against money laundering and terrorist financing. Some of these steps are adopting KYC, CDD, and Risk-Based Approach procedures.

AML Risk Assessment helps companies understand what conditions increase the chances of a customer's involvement in money laundering or terrorist financing. This process is usually called Key Risk Indicators (KRI). Financial institutions need to strengthen their AML Compliance programs by adopting a risk-based approach. In addition, many regulators such as OFAC expect financial institutions to adopt a risk-based approach.

Why Is AML Risk Assessment Required?

  • Using AML risk assessment will help business:
  • Develop programs to reduce the risk of money laundering.
  • Apply a risk-based approach to detect and prevent money laundering.
  • Understand the level of risk customers bring to the company.
  • Take required steps depending on customers' risk levels.
  • Identify risk sources and evaluate risk reduction programs.
  • Run successful AML compliance programs.

It is also essential for companies to ensure their AML Risk Assessment is reliable since Solicitors Regulation Authority (SRA) might want to review it.

What Are The Keys Risk Indicators in Money Laundering? 

The key risk indicators for global companies are:

  • The key risk indicators for global companies are:
  • Size of a business and transaction
  • Customer type
  • Types of products and services sold to customers
  • Location

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 risk range is often five levels; Very Low, Low, Medium, High, and Very High. The findings of the money laundering risk assessment will result in individual risk scores for each KRI and 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 customer onboarding, companies should;

  • Understand the risk level of the customer.
  • Use Britain's National Risk Assessment (NRA) and SRA's 2018/19 risk outlook as a guide.
  • Take required steps when a high-risk customer identified.

Assessment of High Risk Activities

The latest AML Guides FATF should be observed when doing financial activities with companies and individuals from industries with higher risks of money laundering and financial activities. In addition, NRA gives a reliable Risk Assessment and risk levels based on different Key Risk Indicators. 

Businesses should document the measures they take to adopt a risk-based approach since regulators might ask about their AML Compliance programs.

Risk Assessment in Customer Onboarding Process

Each customer brings a different level of money laundering risk to companies depending on Key Risk Indicators. Companies should adopt Customer Risk Assessment to take the required steps when a customer makes a financial activity that doesn't fit into their customer risk profile.

Companies should implement risk assessments for their customers according to regulators. The most common method for risk assessment is sanction lists, PEP lists, and Adverse Media Screening. Companies can't scan their customers on all of these data manually. Sanction Scanner help companies meet their Risk Assessment needs with AML Name Screening Software. You can contact us if you have any questions.

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