Financial Crime World

Risk-Based Approaches to Mitigate Money Laundering (ML) and Terrorist Financing (TF)

As part of the Central Bank of Bahrain’s Rulebook Volume 1: Conventional Banks, the following guidelines outline the risk-based approaches that conventional banks must take to mitigate ML/TF risks.

Risk Assessment

A conventional bank licensee must ensure that it takes measures to identify, assess, monitor, manage, and mitigate ML/TF risks. The risk assessment process must be properly documented, regularly updated, and communicated to senior management.

Key Components of Risk Assessment

  • Identify: Recognize the potential for ML/TF risks in various areas of the bank’s operations.
  • Assess: Evaluate the likelihood and potential impact of ML/TF risks based on factors such as business complexity, customer profile, and geographic risk.
  • Monitor: Continuously monitor transactions and activities to identify suspicious patterns or behavior.
  • Manage: Implement controls and procedures to mitigate ML/TF risks and prevent their occurrence.
  • Mitigate: Take corrective action to address identified ML/TF risks.

Factors to Consider in Risk Assessment

The following factors must be taken into account when conducting a risk assessment:

  • Nature, scale, diversity, and complexity of business
  • Products and services offered
  • Target markets and customer profile
  • Volume and size of transactions

Governance Arrangements

  • Corporate governance arrangements, including board composition and risk management practices

Product/Service/Transactions Risk

  • Products or services that provide anonymity or facilitate ML/TF
  • Transactions with high-risk characteristics, such as unusual patterns or large volumes

Customer/Investor Risk

  • Proportion of high-risk customers, including those from countries or jurisdictions with higher levels of corruption or organized crime

Country/Geographic Risk

Countries identified by credible sources as having inadequate Anti-Money Laundering (AML) and Countering the Financing of Terrorism (CFT) systems must be considered a high-risk jurisdiction.

High-Risk Countries

  • Countries providing funding or support for terrorist activities
  • Countries with significant corruption, organized crime, or money laundering concerns

Risk Categories

The following risk categories must be considered:

Country/Geographic Risk

  • Countries identified as having inadequate AML/CFT systems

Customer/Investor Risk

  • Customers from high-risk countries or jurisdictions

Product/Service/Transactions Risk

  • Products or services that provide anonymity or facilitate ML/TF

Distribution Channel Risk

  • Channels used to distribute products or services, including online platforms and physical branches