A strong anti-money laundering (AML) compliance program requires a robust risk assessment process.  Ideally, risk assessment should provide a comprehensive analysis of the AML risks of all products and services offered within a bank’s lines of business, as well as an aggregated evaluation of AML risk across the institution.

The need for risk assessment is primarily driven by regulatory requirements.  Banks and financial firms should periodically assess the AML risks of their individual business units as well as the enterprise-wide risk. The risk assessment is designed to create a risk profile of the bank, evaluate the adequacy of the controls in place to mitigate such risks and identify areas that are vulnerable to money laundering along with weaknesses or gaps in the existing control environment.  It should enable the bank to make informed decisions about risk appetite and provide visibility into the bank’s AML risk and control environment for all key stakeholders, including senior management and regulators.

The risk assessment is bank-specific, with a focus on particular risk factors and categories that are unique to the bank’s products, services, customers, entities and geographic locations.  Banks should use a sustainable, effective, and cost-efficient AML risk assessment process, one that integrates a data-driven approach to risk scoring.  A mature risk assessment process should be executed on a regular cycle but should also take place when triggered by a significant event.  Such a process should also evolve with the organization, increasing in impact, sophistication and maturity.

Financial institutions should take a pragmatic approach to implementing a high-performing enterprise-wide risk assessment program.  Structure and rigor are critical to identifying, documenting and validating AML risks and controls. The use of a factory model can decrease costs, increase efficiency, and heighten delivery certainty through the use of dedicated resources.  As part of the process, a control testing program should be incorporated to monitor AML risks.

In my next post, I will look in more detail at the elements of an AML risk assessment program and how they fit together to help banks identify and mitigate AML risks.

For more information, view our presentation on how financial services firms can set-up an effective AML risk assessment program.

AML Risk Assessment Process

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