Risk-Based Supervision Key to Detecting and Deterring Financial Crimes

Introduction

A new report by HM Treasury highlights the importance of a risk-based approach to supervision in detecting and deterring financial crimes such as money laundering and terrorist financing. The report emphasizes that supervisors must take a proactive approach to identifying and mitigating risks within their supervised populations.

Techniques for Effective Supervision

Supervisors use a range of techniques to ensure that firms under their supervision are implementing appropriate controls to prevent financial crimes. These techniques include:

Onsite visits
Desk-based reviews
Questionnaires
Information requests

Collaboration and information sharing among AML/CTF supervisors, law enforcement agencies, and the private sector is crucial in identifying common risk factors and sharing skills and knowledge. Supervisors are working closely with law enforcement to aid investigations and provide businesses with guidance on producing high-quality suspicious activity reports (SARs).

Data Protection Safeguards

The report emphasizes the importance of adequate data protection safeguards to ensure that information is used appropriately.

Supervisory Interventions

The data provided by AML/CTF supervisors shows that there was a significant increase in supervisory interventions, including onsite visits and desk-based reviews, during the 2022-23 period. However, the report cautions against comparing supervisors based on quantitative data alone, as each supervisor’s population and risk profile is unique.

Innovation in Supervision

The report highlights the importance of innovation in supervision, with some supervisors pursuing new methods such as:

Virtual interactions with firms
Modular assessment proactive programs

Conclusion

“The risk-based approach to supervision is critical in detecting and deterring financial crimes,” said a spokesperson for HM Treasury. “We are working closely with supervisors to ensure that they have the tools and resources needed to effectively target their efforts and minimize unnecessary burdens on businesses.”

Full Report Available Online

The full report can be accessed online at [insert link].