What is a financial crime risk assessment?
A financial crime risk assessment is a systematic, step-by-step process of analyzing an organization’s vulnerability to financial crime. To perform a financial risk assessment, you’ll need to take the following steps:
Identify your risks: You need to both understand and document risks, based on the complexity of your organization, the market you are in, the services and products you provide, and how much of your business is conducted online. Looking at past incidents within your organization, and the general proliferation of these financial crimes in the market, you’ll need to estimate your risk level for each of the following:
- Money laundering
- Terrorist financing
- Bribery and corruption
- Market abuse and insider trading
- Tax evasion
- Identity theft
- Electronic crime
- Personal purchases
- Payroll schemes
- Billing schemes
Once you have documented your risks, you can prioritize them, based on which pose the biggest threat.
Establish protective measures to mitigate your risks: With full awareness of where you are most vulnerable, you can plan that controls and systems that you will implement to prevent financial crimes within and against your organization. These controls can include:
- Assigning responsibility to individuals for ensuring compliance. (e.g., will you assign the work to a security team member or hire a new AML analyst)
- Establishing organization-wide policies and procedures.
- Implementing customer due diligence (CDD) and enhanced due diligence (EDD) to ensure that you’re capturing all the customer information needed to assess risk.
- Creating effective management information (MI) reports that provide both data and context.
- Providing adequate training to employees across the organization beyond IT so that they know how to recognize and report financial crimes.
Review and improve controls: Your organization should conduct regular audits to ensure that the controls you have put into place are addressing new risks. As the market and overall environment changes, you need to create new procedures and policies to address new issues and ensure compliance.
Monitor and report: It’s imperative that you monitor the effectiveness of your controls, so document suspicious activity and the steps you’ve taken to resolve the issue. Proper reporting is required under various compliance regulations, so it’s critical to have that information readily available.