The Risk Based Approach is a key principle of AML compliance, and is arguably the most crucial aspect of meeting your firms AML obligations. By utilising a Risk Based Approach, you can effectively revise and adjust the intensity, frequency and amount of compliance work you undertake depending on the current level of risk your firm is facing, or is forecasted to face in the near future. In addition to this, the use of an RBA has a range of practical benefits when done correctly; the cost and burden of your compliance is likely to decrease, you can allocate your resources in a more efficient and effective manner, and you will have more flexibility to respond to emerging risks. đź’¸
In order to utilise an RBA to its full capacity, you must first demonstrate that you have fully assessed the risks present across your firm. There are 3 main levels of risk assessment that are required by the Regulations; Practice wide risk assessment, client risk assessments and matter risk assessments. PWRA’s are required by R8, and must show a comprehensive and in depth look across all aspects of the firm and how it operates. It must identify and consider all risks that the practice may face and demonstrate how you intend to mitigate and monitor these risks. For example, you must address factors such as your client base and demographics, the geographic areas in which you operate, the products or services you offer, your transaction types and frequency, and your firms delivery channels (online, in person, via apps etc). 🛡
Client risk assessments must take a closer look at individual clients and identify how they may pose money laundering and terrorist financing risks, and matter risk assessments should be undertaken at the inception of each new matter within the firm, feeding directly back into the PWRA. These risk assessments must be kept under continual review and updated as and when necessary. A good rule of thumb is an annual periodic review to assess for any changes that are required. đź“ť
It is important to note that the general size of a firm is not an accurate indicator of the level of risk facing it. Smaller high street firms may undertake lower quantities of work than larger national firms, however the nature and complexity of the matter types may open the firm up to a wide range of risks relevant to their work, especially in niche areas of law. They may also be targeted by money launderers who perceive smaller firms to be more vulnerable due to a lack of resources in comparison. 🏢
Intuitive Legal can aid your firm in developing its Risk Based Approach and accompanying risk assessments to a high standard. To find out more information on how we can help, please contact us.
