Understanding General Risk Assessment in AML: key steps and significance

In the context of combating money laundering and terrorist financing, the concept of "general risk assessment" is crucial.

Introduced in conjunction with the adoption of anti-money laundering legislation in 2017, general risk assessment has become a cornerstone for all actions that companies, including accounting firms, must take to identify, evaluate, and prevent the use of their business for illegal financial activities. This article explores the essence of general risk assessment, its various components, and its indispensable role within the AML framework.

Deciphering General Risk Assessment 

When the anti-money laundering law came into effect, general risk assessment became the starting point for compliance measures. This assessment serves as the foundation for companies, including accounting firms, to build their strategies to prevent the use of their services for illegal financial activities. The somewhat perplexing term "general risk assessment," directly translated from its English counterparts "general risk assessment" or "business-wide risk assessment," refers to a comprehensive evaluation and analysis of the potential exploitation of products and services for money laundering or terrorist financing, as well as the extent of such risks.

Distinguishing General Risk Assessment from Customer Risk Assessment

It is important to distinguish between general risk assessment and customer risk assessment. While the former evaluates the inherent risks associated with a company's offerings, the latter comes into play after the general risk assessment is completed and focuses on assessing risks associated with each individual business relationship. Basic customer risk assessment involves the risk factors identified during the general risk assessment phase, such as product-related risks, geographic risks, and more.

The Three Essential Steps in the Process 

Step 1: Identification of Threats and Vulnerabilities The first step involves assessing how susceptible an accounting firm is to being exploited for money laundering or terrorist financing. Vulnerabilities can arise not only from individual products or services but also from other parts of the system, such as distribution channels. Vulnerabilities can also arise due to factors like the size and organizational complexity of the firm.

Step 2: Assessment of Inherent Risk Built upon the threat and vulnerability analysis from the first step, the second step involves evaluating the company's risk exposure. This analysis aims to answer the question: What is the likelihood that the company will be used for money laundering or terrorist financing? The analysis involves assessing the probability and consequences of different risks, with inherent risk being a combination of these two factors. This evaluation covers the company's products, customers, distribution channels, and geographic exposure.

Step 3: Implementation of Risk Mitigation Measures The third step focuses on implementing measures to reduce the inherent risks identified in the previous phase. These "risk mitigation measures" are designed to mitigate the identified risks and facilitate their effective management. Examples include collecting customer information and implementing controls for Politically Exposed Persons (PEP) and sanctions.

Benefitting from Technology for Enhanced AML Compliance

In today's digital landscape, tools like the Verified AML portal streamline AML compliance efforts for companies. This platform expedites the process of onboarding new customers, assists with ongoing monitoring, and provides a comprehensive overview of business relationships. By embracing such technological solutions, companies can take control of their customer risk assessment and ensure secure digital storage of important documents.

The concept of general risk assessment at the heart of AML efforts serves as a strategic guide for companies to identify, evaluate, and prevent vulnerabilities to money laundering and terrorist financing. By understanding the nuances of this assessment process, organizations can enhance their AML compliance measures and contribute to a safer financial world.

The Verified AML portal simplifies and digitizes companies' work in line with anti-money laundering laws. For faster onboarding of new customers, support in monitoring, and a clear overview of ongoing business relationships. Take control of your customer risk assessment and ensure that all documents are digitally stored for easy traceability.

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