In the modern financial world, it’s more important than ever for institutions to have effective processes for fighting financial crime. Stricter regulations and laws alongside new methods from criminals have added increased pressure on the need for effective anti-money laundering processes, and a critical part is AML risk management.
This involves identifying, assessing and mitigating risks in an attempt to prevent money laundering and financial terrorism. Whether you’re a crypto company or a banking firm, understanding AML risk management is essential to the safety of your business and to ensure you stay compliant with AML laws.
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Anti Money Laundering risk management refers to the processes used to identify, prevent and detect financial crime before it damages your customers, business or violates money laundering laws.
AML risk management involves:
Risk management is a continuous process and regularly changes as new information and financial crimes evolve.
All financial firms are required by law to have AML processes in place to comply with the 2017 Money Laundering Act, alongside other regulations. Some of the UK authorities include the Financial Conduct Authority and HMRC.
The government has set a number of penalties to encourage compliance with anti-money laundering regulations. Some of these include:
Compliance is not only essential, but proof of effective AML compliance through detailed record keeping is also needed.
AML management isn’t just designed to ensure compliance; it’s also an important tool that helps protect your business. Without strong risk management procedures, your business can be exposed to a number of threats, including:
If your company becomes associated with financial crime or breaches in financial security, this can lead to significant reputation damage and reduce the amount of trust customers have in your services. In order to ensure the success of your business and maintain a positive image, a strong AML system is essential.
FWRA refers to the process of regularly reviewing risks across your entire business to identify potential risk or threat of exposure to financial crime, money laundering or sanctions. Key factors to evaluate include:
Each one of these aspects is assessed, and the level of risk is determined.
Customer Due Diligence is a requirement for any UK financial institution and is the process of assessing customers before onboarding. These checks include:
Ongoing monitoring is the process of regularly reviewing customers to assess if their risk status changes. The monitoring process can be automated by advanced AI software and can be as frequent as needed in relation to the risk level of a customer. The process includes:
Screening is essential for all customers during the onboarding process and involves screening customers against global watchlists, including the Dow Jones watchlist. Customers on these lists have been identified as Politically Exposed Persons (PEPs), Relatives and Close Associates (RCAs) or Special Interest Persons (SIPs) and are at greater risk of association or exposure to financial crime.
Anyone identified on these lists will need enhanced due diligence investigations or can even be rejected during the application process.
If a customer is suspected of money laundering or is flagged for any suspicious transactions, the next AML risk management procedure is to file a Suspicious Activity Report. This report includes all of your findings through your AML investigations and will be directed to senior management or the correct financial authorities for review.
Criminals continue to evolve their methods of committing financial crime, whilst new technology and AML processes to fight money laundering are also regularly introduced. Because of the ever-evolving nature of this process, regular training is needed for all teams at financial institutions. Every company should appoint a dedicated AML officer, and staff at all levels should be educated on new regulations and the most effective ways to conduct AML checks.
It’s not enough to just conduct AML checks; you need to keep detailed records to prove you’ve conducted these checks on your customers. All investigations need to be documented, including risk assessments and determined risk levels, transactional data and CDD documents. This not only makes regular reviews and audits easier, but it also protects your business should any financial authorities investigate your AML processes.
The most effective AML risk management strategies focus on carefully directing resources to areas with the biggest risk. Firms should be able to understand the specific risks posed by customers and clients and effectively redirect efforts based on the severity of the threat.
Any decisions made when conducting AML checks, such as deciding to conduct enhanced due diligence, should be documented with the reasoning for these decisions.
The most effective risk management strategies involve a mixture of manual and automated processes. In order to ensure no risk slips through the cracks, you need reliable software that can identify anomalies or suspicious activity in real time.
With SmartSearch’s advanced AML software, you’ll have a strong line of defence against financial crime and will have all the tools you need to keep your customers and your business protected against fraud.
To see what our amazing system can offer your company, request a free demo today or get in touch with our experts to learn more about our services.