Comprehensive Risk Assessment Framework for Financial Institutions
Risk Indicators Concerning Products
Product-Based Risk Weights
The following table lists various products with corresponding risk weights (10-50), based on factors such as loan and credit amounts, business type, client nationality, and institutional status.
| Product | Risk Weight |
|---|---|
| Private Banking | 20 |
| Niche Product | 30 |
| High-Value Loan | 40 |
| Credit with term < 6 months | 50 |
Risk Indicators Concerning Clients
Client-Based Risk Weights
The following table lists various client characteristics with corresponding risk weights (10-50), based on factors such as country of origin, client type, and UN sanctions list status.
| Client Characteristic | Risk Weight |
|---|---|
| Foreign National | 20 |
| Institutional Client | 30 |
| Non-FATF Member Country | 40 |
| UN Sanctions List Status | 50 |
Additional Weighting
Factors Affecting Risk Weights
The framework allows for additional weighting based on the following factors:
- Client Attributes
- Client on UN List: +50
- < 1 year relationship: +30
- Financial institution/intermediary acting obo client: +10
- Nature of Product
- Credit with term < 6 months: +30
- Facilitates cross-border movement of funds: +20
- Source of Funds
- Dealer in high value goods: +30
- Import/export: +30
- High cash generating: +30
Risk Classes
Defining Risk Classes
The framework defines three risk classes:
- Low: 10-29
- Medium: 30-39
- High: 40 and higher
Country Classification
Country-Based Risk Classification
The framework uses a country classification system (A, B, C) based on FATF membership status and NCCT listing.
This comprehensive risk assessment framework allows financial institutions to systematically evaluate money laundering risks associated with various products, clients, and transactions. By applying this framework, institutions can identify high-risk areas and implement effective mitigation strategies to prevent money laundering.