Risk Identification: Financial Institutions Must Identify ML/FT Risks
Financial institutions must identify the money laundering and terrorist financing (ML/FT) risks they face through comprehensive and specific risk evaluation. This process involves analyzing various factors, including:
- Products and services offered
- Transaction types
- Countries and geographic areas of transactions
- Customer attributes
Industry experts recommend breaking down ML/FT risks into smaller categories to assess the risks for each category. This will enable financial institutions to visualize the results in a risk map and review them in a timely manner.
Risk Assessment: Financial Institutions Must Conduct Regular Risk Assessments
Financial institutions are required to conduct regular risk assessments at least once a year, as well as when new risks arise or new regulations are introduced that may have a significant impact on anti-money laundering (AML) and combating the financing of terrorism (CFT) measures.
The risk assessment process involves:
- Involving the board in the process
- Obtaining approval for documenting the results
- Reviewing risk assessments regularly to ensure they remain effective
Risk Mitigation: Financial Institutions Must Implement Effective Measures
Financial institutions must implement effective measures to mitigate ML/FT risks, including:
- Customer due diligence (CDD): collecting and verifying information about specific customers and their activities and transactions in light of the results of risk assessment
- CDD is a critical element of risk mitigation measures
The CDD process involves:
- Collecting and verifying fundamental information about customers
- Comparing that information with the results of risk assessment
- Determining measures necessary to mitigate identified risks
Enhanced Measures: Financial Institutions Must Implement Enhanced Measures for High-Risk Customers
Financial institutions are required to implement enhanced measures when they identify high ML/FT risks based on their own criteria. This includes:
- Implementing measures commensurate with the level of risk posed by individual customers and their transactions
- Examining updated cases and information from domestic and foreign authorities and industry associations
Industry Experts Weigh In
Industry experts stress that financial institutions must be proactive in identifying ML/FT risks and implementing effective measures to mitigate those risks. They note that CDD is a critical element of risk mitigation measures and that financial institutions must collect and verify fundamental information about their customers in order to effectively mitigate identified risks.
Conclusion
Financial institutions must identify ML/FT risks through comprehensive and specific risk evaluation, conduct regular risk assessments, implement effective measures to mitigate those risks, and examine updated cases and information from domestic and foreign authorities and industry associations. By taking these steps, financial institutions can reduce the risk of money laundering and terrorist financing.