Financial Crime World

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Risk Assessment Process for Money Laundering (ML) and Terrorism Financing (TF) in Financial Institutions

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General Principles

The Central Bank of [Country] (CBL) requires financial institutions to undergo a thorough risk assessment process to identify and mitigate potential money laundering and terrorism financing risks. The following are the general principles guiding this process:

  • Board and senior management involvement: The board or designated committee and senior management must understand the assumptions used in risk measurement methods or models.
  • Accuracy and reliability of risk measurement methods: The accuracy and reliability of risk measurement methods or models should be verified through regular back-testing and periodic updates to reflect changing market conditions.

Risk Assessment Requirements

To ensure a comprehensive and accurate risk assessment, financial institutions must adhere to the following requirements:

Comprehensive Analysis

  • ML/TF risks identification: Identify and assess money laundering and terrorism financing risks associated with the institution’s unique combination of products, services, customers, geographic locations, delivery channels, and other factors.
  • Data analysis: Involve analysis of all available data to assess identified risks.
  • AML/CFT compliance program evaluation: Evaluate the institution’s anti-money laundering (AML) and combating the financing of terrorism (CFT) compliance program.

Risk Measurement

  • Residual risk establishment: Establish residual risk for the risk categories identified.
  • Weights and scoring: Use appropriate weights and scoring.
  • Documentation: Document the risk assessment conducted.
  • Internal review and approval: Subject the risk assessment to internal review and approval by the board and management.

Updating Risk Assessment Policies/Programs

  • Frequency: Update the risk assessment policies/programs at least every two years or after the occurrence of a significant event.

Identification of Specific Risk Categories

When identifying specific risk categories, financial institutions should consider the following factors:

  • Unusual business relationships
  • Unexplained geographic distance
  • Frequent account movement
  • High-risk products or services
  • Unusual transaction patterns
  • Countries with high ML/TF risks
  • Regions with unstable economic conditions
  • Unsecured online transactions
  • Unverified customer identities

Other Qualitative Factors

  • Financial institution’s reputation and credibility
  • Industry-wide trends and developments