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Iceland Takes a Closer Look at Financial Crime Risk Assessment Methods

As part of its efforts to combat money laundering and terrorist financing, Iceland has established a business-wide risk assessment framework for obliged entities. According to Act no. 140/2018, these entities are required to conduct regular risk assessments to identify potential weaknesses and threats in their operations.

The Risk Assessment Process

The risk assessment process involves a thorough written analysis and assessment of the likelihood of money laundering and terrorist financing, taking into account various factors such as:

Customer risk
Trading countries or regions
Products and services
Technology
Distribution channels

Obliged entities must update their risk assessments at least every two years and whenever necessary.

Documentation and Methodology

To ensure effective risk management, obliged entities are required to document their methodology and clearly outline how they:

Identify and assess risk factors
Obtain data
Classify risks
Apply criteria in the classification process

The approach used by each entity must be substantiated and regularly reassessed for updates.

Regulatory Requirements and Guidelines

Icelandic authorities have issued guidelines on risk factors related to money laundering and terrorist financing, which obliged entities are expected to familiarize themselves with when preparing their risk assessments. Regulation no. 545/2019 provides further guidance on methodologies for risk assessment, classification, monitoring, supervision, management, and procedures.

In addition to the regulatory requirements, obliged entities must also take into account the risk assessment conducted by the National Commissioner of Police. The European Banking Authority (EBA) has issued guidelines on risk factors related to money laundering and terrorist financing in the financial sector, which obliged entities are encouraged to consult when preparing their risk assessments.

Importance of Conducting a Comprehensive Risk Assessment

Experts say that conducting a comprehensive risk assessment is crucial for identifying potential vulnerabilities and implementing effective measures to mitigate them. By taking a proactive approach to risk management, Icelandic authorities aim to prevent financial crimes and ensure the stability of the country’s financial system.

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