Financial Crime World

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Risk-Based Approach to Assessing and Mitigating Money Laundering/Terrorist Financing/Preventive Fraud Risks

The Central Bank of Bahrain has outlined the requirements for a risk-based approach (RBA) to assessing and mitigating money laundering/terrorist financing/preventive fraud (ML/TF/PF) risks in the investment business. This excerpt from the Rulebook Volume 4: Investment Business, Financial Crime (FC) chapter highlights four main sections that licensees must adhere to.

Section 1: Risk Assessment

Documenting and Updating the Risk Assessment

Licensees are required to conduct a risk assessment that includes documenting, updating, and communicating the risk assessment to senior management. This ensures that all stakeholders are aware of the potential ML/TF/PF risks and can take necessary steps to mitigate them.

Section 2: Country/Geographic Risk

Identifying High-Risk Countries

Country/geographic area risk can be used as an indicator of potential ML/TF/PF risks. Licensees must consider factors such as:

  • Countries with inadequate Anti-Money Laundering (AML)/Countering the Financing of Terrorism (CFT) systems
  • Terrorist funding or support
  • Corruption
  • Organized crime
  • Weak governance

Using Country/Geographic Risk to Assess ML/TF/PF Risks

Licensees must use country/geographic risk as an indicator of potential ML/TF/PF risks when assessing the overall risk profile of their investment business.

Section 3: Customer/Investor Risk

Identifying High-Risk Customers

The following categories of customers may indicate a higher risk:

  • Non-resident customers
  • Personal asset-holding vehicles
  • Companies with nominee shareholders or bearer shares
  • Individuals with connections to high-risk jurisdictions

Licensees must assess these customers carefully and take necessary steps to mitigate potential ML/TF/PF risks.

Section 4: Product/Service/Transactions Risk

Assessing the Risks Presented by Products, Services, Transactions, or Delivery Channels

Licensees must use a RBA to assess the potential risks presented by their products, services, transactions, or delivery channels. This includes considering factors such as:

  • The type of product or service offered
  • The target market or customer base
  • The complexity of the transaction or delivery channel
  • The level of due diligence required

Mitigating ML/TF/PF Risks in Products, Services, Transactions, or Delivery Channels

Licensees must take necessary steps to mitigate potential ML/TF/PF risks in their products, services, transactions, or delivery channels.

By following these guidelines, licensees can ensure that they are taking a risk-based approach to assessing and mitigating ML/TF/PF risks in the investment business.