Why is AML Risk Management Significant? | SMART Infotech

With the advancement of technology, there is also an increase in the number of money laundering & terrorist financing avenues. The AML Risk Assessment mechanism by AML-TRACE helps identify and report such potential risks, thus saving businesses a lot of damage.

The identified possible areas of money laundering and terrorist financing activities are Key Risk Indicators. All companies across the world can benefit from the in-built AML risk scoring model of the software to understand and evaluate financial fraud risk. 

The Key Risk Indicators

• The type and size of a business.
• Kinds of customers, and products and services offered to them.
• Way of hiring new customers & keeping in touch with existing customers.
• Geographical risks.

Risks are posed by:

• Your customers' beneficial owner(s).
• Your clients’ source of funds & wealth.
• The kind of business relationship with your customers.
• The control structure of companies and trusts.

Besides defining the KRIs mentioned above, an effective AML risk assessment mechanism needs to measure risk factors & allocate the findings to a high, very high, medium, low, and very low-risk range.  

Eventually, individual risk scores for each KRI are calculated. Then, adding all of these, the total risk score of the business is calculated. Also, keep in mind that for each of the KRIs, there are several risk drivers–their influence increases or decreases risk.   

Where a risk driver is high in measurement, the risk range or rating is higher, and vice versa. 

Inherent Risk

The initial anti-money laundering risk assessment process measures the inherent risk. It is the risk that exists without any controls in place.

Residual Risk

The risk assessment figure is first arrived at after the inclusion of inherent risk. This is then deducted by the measured strength of controls to attain the residual risk. 

After calculating residual risk, a business ensures ongoing monitoring, identification, reporting, & management of money laundering risks.

Why adopt the customer risk assessment methodology by AML-TRACE?

• Understand risk levels associated with specific business relationships and transactions.
• Develop procedures, policies, & controls to reduce money laundering risk.
• Make appropriate risk-based decisions about employees & customers.
• Identify risk sources & evaluate risk reduction controls
• Effectively run successful AML compliance programs. 
• Assess the rating of money laundering risk in a country.

                                    

What is the best way to assess High-Risk Activities?

The factors of conveyancing, trust and company formation, & customer account services have been described as the highest risk activities by the National Risk Assessment. It is in the best interest of the businesses to follow the industry's latest AML risk management guide and observe all the financial fraud warning signs. 

Further, businesses must document the measures they take after applying the AML risk scoring model. This will help them adjust their policies and controls accordingly and thus, mitigate any future risks.

How is risk assessed during customer onboarding?

A customer's risk depends on the relationship between the person and the company. Essentially, the need for customer risk assessment comes when they perform an action that is not congruent with their profile.

Correct implementation of measures that need to be taken after thorough customer risk assessment goes a long way in minimizing risk.

As part of Customer Due Diligence, companies need to perform Sanctions, PEP, & Adverse Media Screening. Technology has made manual risk assessment methods obsolete. AML-TRACE performs automatic AML Risk assessment in a tamperproof and cost-efficient manner. In this way, it helps you seamlessly meet your AML and KYC obligations.

Meaning of Customer Risk Assessment Methodology

1. Determining Risk

First, the risk score is arrived at after an extensive identification and analysis of the customer’s transactions. 

2. Ongoing Monitoring & Control

Accordingly, relevant control mechanisms are devised and implemented. Risky profiles and transactions are monitored–after considering various policies–on an ongoing basis to ensure compliance. 

3. Carry out a Risk-Based Compliance program

This involves detecting and inspecting suspicious account activities for the business to be AML compliant.  

4. Assessing Risk

Finally, the data obtained is used to assess risk. Also, continuous transaction monitoring is performed on the data. This keeps track of risky profiles & transactions to prevent financial crimes.