Risk-Based Approach to Managing Money Laundering and Terrorist Financing
The Central Bank of Bahrain has issued guidelines on managing money laundering (ML) and terrorist financing (TF) through a risk-based approach. This approach ensures that conventional bank licensees take measures to identify, assess, monitor, manage, and mitigate ML/TF risks.
Risk Assessment
A key aspect of the risk-based approach is conducting regular risk assessments. The following are some essential points to consider:
- A conventional bank licensee must ensure that its risk assessment is properly documented, regularly updated, and communicated to senior management.
- Risk assessments should be based on credible information about potential ML/TF risks.
Risk Categories
There are several methods for assessing ML/TF risks, including the use of risk categories. The following are some key factors to consider:
Country/Geographic Risk
Country/geographic area risk can provide useful information about potential ML/TF risks. Factors that may be considered as indicators of higher risk include:
- Countries identified by credible sources as not having adequate AML/CFT systems
- Countries providing funding for terrorist activities
Customer/Investor Risk
The proportion of customers identified as high-risk, target markets, and jurisdictions with relatively higher levels of corruption or organized crime are factors to consider when assessing customer/investor risk.
Product/Service/Transactions Risk
The nature, scale, diversity, and complexity of business, products, and target markets; corporate governance arrangements; products and services that provide anonymity or ability to pool underlying customers/funds; and the volume and size of transactions are factors to consider when assessing product/service/transactions risk.
Distribution Channel Risk
The distribution channels used, including direct dealings with customers and reliance on third parties for CDD, and the use of technology are factors to consider when assessing distribution channel risk.
Regular Review and Feedback
It is essential to regularly review assessments and consider internal feedback from management, compliance risk management, and internal audit (where relevant) in performing periodic risk assessments. This ensures that the risk-based approach remains effective and up-to-date.