When thinking about Risk Assessment, internal rules may come to mind first. However, risk awareness plays a huge role. It is essential to consider what the company has used for ML/TF (money laundering and terrorist financing) cases. Even if the person responsible thinks that "we have no risk ", it is crucial to consider possible cases/events. Any risk may appear in any company.
It is important to take into account all factors that impact the AML risk environment, like national risk assessment, FATF and FIU Guidelines and other requirements due to the pandemic. According to the AML regulations, there might be different criteria to categorise AML risks, like internal procedures, company AML Risk Assessment/Risk Appetite, KYC measurements, outsourcing activities, correspondent relationships, sanctions, training, high-risk activities, evaluation of the new product, reporting, etc. In all of the above areas, a number of potential emerging risks that affect the future success and compliance of the company should be considered. The company can be affected in many ways: environmentally (government decisions), on regulatory level (changes in legislation), currently relevant pandemic, labour market, the company itself (structure, information flow between different departments), financially, strategically, taking into account internal and external risks.
AML company-wide Risk Assessment summarises the potential risks affecting a business. The matrix's methodology consists of the probability that the event will occur and the impact that the risk event will have on the business. In other words, the report describes the nature of the risk and the mitigating mechanisms.
It can also be related to an internal audit risk matrix where the identification of inherent risks begins. Inherent risk is the risk to the organisation in the absence of any actions management to alter the risk's probability or impact. Depending on the likelihood and impact, risks are categorised as high, medium, or low. As part of the risk management process, AML Risk Assessment helps companies prioritise different risks and develop an appropriate mitigation strategy.
Although it is impossible to eliminate AML risks completely, the company's best protection is the prevention of risks. Identifying, evaluating risks and playing through different scenarios that may negatively impact the company's ability to meet business objectives helps to understand the company's AML risk environment and manage risks before they occur.
After playing through different scenarios/potential events, it is essential to set controls to ensure that risk mitigation activities are carried out. Most of the time, it is done by the compliance officer during regular compliance checks. Also, residual risk plays an important role. After taking risk mitigation actions and instituting controls, it's the remaining risk to alter the risk's probability and impact. Therefore, the lower the residual risk, the more risk mitigation actions have been taken into account. The most common consequences of noncompliance and not mitigating risks are penalties, financial loss, revocation of the license, reputational damage, etc.
The advantage of completing the AML Risk Assessment is having a profound overview of the current situation of the evolving risk environment. It helps to prioritise risks and visualise a strategy to mitigate existing/potential risks. It also guides the compliance officer, board, and management to understand where their efforts should be directed.