Beyond De-risking

Nearly half the world’s financial institutions have been victim to at least one financial crime in the last one year, according to this report by Refinitiv. This fallible financial climate calls for FIs to be risk intelligent.

There are hefty costs to avoiding risks. Reacting, or rather, overreacting to regulatory mandates and terminating account relationships has a net negative effect on the banking industry’s compliance health. De-risking, or financial exclusion of risky clients, does not translate into lowered risk of money laundering as such a move can force entities into less regulated or unregulated channels, making threat detection hard.

A risk based approach, on the other hand, will allow banks to pursue new growth opportunities. But banks require a sufficient level of AML services and controls in place to pull this off without taking hits. Without these measures, adding new clients would expose the bank to vulnerabilities. It is an act amounting to a banking blunder.

The path to risk intelligence

There are two essential preconditions to a successful RBA.

A) Compliance policies aligned with various business lines and models
By tailoring compliance procedures and policies to specific business operations, business leaders can identify overlapping regulatory and business needs. This creates room to capitalize on technology and compound returns.

B) Integrated systems across relevant functions and geographies
Integration facilitates information sharing between organizational silos, regulatory bodies, law enforcement agencies, and partner banks for improved compliance.

Modeling risk for AML Services

The Wolfsberg group issues guidance to FIs on the key risk factors to identify and assess across different vectors, for a risk based approach to AML compliance.

Vector        Risk
Customer Customer background, PEP, and beneficial ownership; some potentially high risk customers include armament manufacturers, unregulated charities, and dealers in high value/precious goods.
Country Countries subject to sanctions, embargoes; those identified as non-cooperative; and countries with significant levels of corruption, or criminal activity
Products and Services Type of service (correspondent and international private banking, for example), account currency, previous banking relationships
Industry Nature of business activities, and related functions


FIs should train compliance professionals to measure and ascertain risk ratings across these different attributes. Continuous updates and ongoing due diligence are other non-negotiables.

Technology for RBA

Thanks to the technological big bang that has given birth to AI, big data, graph analytics, and cloud computing, FIs can now go beyond packaged ERP AML compliance solutions that are not optimized for specific business lines and operating models. Business architecture driven technology not only enables better risk assessments, it also reveals growth areas for multiplying your organization’s value- two (angry) birds in one stone.

That’s not all. There are positive ripple effects to RBA. FATF believes RBA may foster financial inclusion for low income individuals currently excluded from regulated financial systems, provided they are of proven low risks.

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