In this guide that accompanies the webcast, we focus on what firms should expect from the Anti-Money Laundering reviews conducted as part of FINRA’s routine examinations. We will review how FINRA examiners will check to make sure you have appropriate AML procedures in place, and you will learn what we expect of you and what you should expect from us during the AML part of an exam. We hope you find it helpful and that it takes some of the mystery out of FINRA’s examination process. Update your policies and procedures as needed and ensure that the appointed compliance officer reviews them to keep them aligned with regulatory changes. This, along with a strong culture of compliance, can minimize the risk that your organization will be involved with money laundering.

The risk level that comes from customer onboarding can be mitigated by ensuring that the best-practice KYC checks are in place as a large part of a greater risk assessment program. You conduct an AML risk assessment by determining risk factors, gathering the relevant information accordingly, and then compiling the results and reaching conclusions about your organization’s money laundering risk level. You will also need internal controls that include a formal document detailing your risk assessment procedure that has been approved by your board of directors. The risk assessment policy should include what risk level is acceptable for clients and how the financial activity will be monitored.

Maintaining ongoing oversight of ML/TF risk

Offers coverage for a full range of suspicious activities; from structuring to fraud, terrorist financing to money laundering, tax evasion to insider trading, and other financial crime activities in between. Our globally standardized methodology validates scoring decisions, provides data and narratives on internal AML controls, and measures the effectiveness of control programs. Controls and control effectiveness evaluations are mapped against best practices and guidance from global authoritative sources, paving the way for better AML risk assessment standards.

How AML Risk Assessments Work

Some firms may decide they can mitigate high-risk accounts with heightened transaction monitoring. During a routine examination, examiners will likely ask about your firm’s AML program. They will expect to see that it is “risk-based” and designed to specifically mitigate your firm’s money laundering risk. This allows firms to efficiently use their compliance and supervisory resources, and it provides flexibility to design an AML program customized to fit their business model and customer base. The obligation to comply, manage risk factors, and evaluate their potential influence on money laundering activities can often seem overwhelming.

Integrating a Risk Assessment into an AML Program

By implementing an effective AML risk assessment framework, financial institutions can proactively identify and assess the likelihood and potential impact of financial crimes within their operations. This enables them to allocate resources, implement proper controls, and prioritize their efforts to effectively manage and mitigate the risks related to money laundering and terrorist financing. Various methods and formats may be used to complete the BSA/AML risk assessment; therefore, there is no expectation for a particular method or format. Bank management designs the appropriate method or format and communicates the ML/TF and other illicit financial activity risks to all appropriate parties. The following example illustrates the value of the two-step risk assessment process. The information collected by two banks in the first step reflects that each sends 100 international funds transfers per day.

How AML Risk Assessments Work

For example, if the customer is a relative or a close personal friend of the registered representative, the firm may not require more than the minimum verification required by the rules, such as checking her driver’s license. FINRA wants to see what your firm does beyond simply complying with SEC and FINRA Books and Records rules. FINRA expects your firm to have procedures to determine when you need to go above and beyond the basic customer identification process. Your examiner will review these procedures and check to see that your firm has followed them.

Ensure Adequate Staff is Dedicated to AML

In summary, the design and implementation of a robust ML/TF risk assessment enables a reporting entity to effectively identify, manage and mitigate its ML/TF risk exposure. The ML/TF risk assessment is a powerful diagnostic tool that allows a reporting entity to understand its ML/TF risk exposure, set its risk appetite and implement effective mitigating controls and downstream processes accordingly. For business risk, assess how easy it would be for a customer to use the products and services you offer to launder money or use your firm to commit a crime. For example, look to see if your business involves transactions in penny stocks, bearer shares or Regulation S securities. While these are all perfectly legitimate products, they are examples of securities that may be susceptible to fraud and market manipulation.

How AML Risk Assessments Work

For more information about how Unit21 can play a part in helping your organization identify suspicious transactions or potential bad actors, schedule a demo today. Again, you should keep a record of your AML risk assessment methodology and your processes and observations throughout these stages. By doing so, you will be able to show your workings if or when an AML audit/investigation is called for, and you will also help yourself to improve the process for the next time an AML risk assessment is in the best interests of the organization.

Main Factors to Consider in Determining AML Risk

Generally, AML rules are designed to identify and stop attempts to use brokerage accounts to launder criminal activity proceeds or to finance terrorism. They help financial institutions focus on money-laundering risks and develop critical intelligence for law enforcement. Once you complete the AML risk assessment, you can rate your clients as low, medium, or high risk.

  • These may include how customers find your company, where customers are located, and the type of transactions they want to conduct.
  • For instance, the Bank Secrecy Act (BSA) requires that companies take steps to mitigate the risk of money laundering at the individual level.
  • Plus, the software also checks whether the user is on other online accounts, such as Netflix and LinkedIn, because – especially nowadays – it is suspicious that someone would not be on at least one of these kinds of major accounts.
  • These factors should be evaluated before you implement any internal controls or mitigation so that you can gauge the effectiveness of your efforts later.
  • Risk assessment also helps identify the institution’s inherent risk and assesses the effectiveness of its ML preventive and detective controls.
  • Combining fraud and AML efforts is the best way to provide true protection and security.

A risk assessment helps keep you safe from money-laundering schemes run by financial criminals. Without a plan in place, you risk the reputation and financial health of your company. You will need to pay particular attention to higher-risk transactions and clients’ business relationships. You now know why you need to build an effective AML risk assessment system and understand the basic categories of risk. If you work with many cash-intensive businesses, you are more prone to compliance issues because of their compromised behavior. You must assume that at least some of these organizations are engaged in illegal activity.

Build custom risk models

Unfortunately, despite the risk assessments, controls and strict processes we implement, financial fraud is evolving faster than ever. In fact, in 2022, financial services businesses saw a 79% increase in document fraud compared to the previous year. Given the state of the current economic climate, this situation isn’t predicted to settle anytime soon. An AML risk assessment is a key component of any AML tool kit, enabling businesses to measure the likelihood that a customer or client is involved with money laundering or terrorist financing. An AML risk assessment will measure the risk level of each client, performing due diligence to minimize any potential involvement in a money laundering scheme. To determine which clients are most likely to be involved with money laundering or other illicit activities, the assessment model looks at key risk indicators – or KRIs.

How AML Risk Assessments Work