Companies subject to the Money Laundering, Terrorist Financing, and Transfer of Funds (Information on the Payer) Regulations 2017 (MLR 2017) are supposed to conduct a written firm-wide risk assessment. As of June 26, 2017, this has been a formal requirement.
Criminals use money laundering to make the proceeds of their crimes look legal. Companies may take away offenders' ability to commit exploitative crimes, such as drug smuggling or human trafficking, by stopping money laundering. All of these crimes often affect the vulnerable. This contributes to a reduction in overall violence, resulting in a safer, secure world for everyone. Terrorist financing can be supported by the same high controls that enable money laundering to arise.
The Solicitors Regulation Authority (SRA) can request a copy of your company's risk assessment if anything goes wrong with security at your company.
Advantages of Carrying out a risk assessment:
- Establish anti-money laundering laws, protocols, and measures
- Track and deter money laundering using a risk-based approach
- Be aware of the level of risk that specific commercial interactions and transactions pose
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Make reasonable risk-based customer and retainer decisions
O utline of Sectoral Risk Assessment
The MLR 2017 summarizes the factors to include in risk assessment, these include:
- the customers with you work
- if you serve in countries that have a high degree of corruption or are sanctioned
- if you provide programs in locations that are considered "at-risk" since they include carrying customer money
- transaction features, such as the origins of funds and if a transaction is outside the firm's usual scope of work
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the company's distribution services, such as the use of distributors and facilitators, as well as internet services
It's crucial that you write down and keep track of your risk assessment. Your risk report can be formatted in various ways, including chapters, tables, and risk rating matrixes.
Once you complete your risk assessment, ensure that you:
- keep track of the sources you consult
- revise it regularly, considering changes in your conditions or the SRA's risk assessment.
High-Risk Activities and Jurisdictions
In your risk assessment, determine what portion of your work is made up of controlled activities, particularly those defined by the NRA as "high risk."
Money launderers are most likely to misuse the following programs, according to the NRA:
- the establishment of trust and a corporation
- conveyancing
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account management services for clients
To minimize risk while operating in these areas, you must follow the most recent AML advice for the legal sector and be aware of money laundering danger signs. You should keep track of the steps you've taken to reduce these risks and change your protocols, controls, and procedures as needed.
If you're working with clients or dealing with matters in a "high-risk" jurisdiction, the risk management should indicate that. At the minimum, you'll need to think about how you handle clients and issues, including countries on the EU's list of high-risk third countries. Stay up to date with the Financial Action Task Force (FATF) list of high-risk countries with shortcomings in their anti-money laundering and counter-terrorist funding regimes.
The Difference Between Matter and Firm Risk Assessments
A matter or customer risk assessment is frequently confused with a firm-wide risk assessment. Both documents are distinct that have various purposes, but money laundering regulations require both.
- A company-wide risk assessment should determine the money laundering risk that your company faces.
- A matter or case risk evaluation is related to a single client file which should evaluate the client's or matter's money laundering risk.
Updated AML Sectoral Risk Assessment
In the legal market, the Solicitors Regulation Authority (SRA) has revised its sectoral risk assessment for anti-money laundering (AML) and terrorism funding. The SRA's risk assessment comes after HM Treasury's third national risk assessment (NRA) was released in December 2020. The SRA's risk review, which was published in January 2021, describes the following emerging threats to the profession:
COVID-19
Firms may be vulnerable to exploitation as a result of the coronavirus (COVID-19) pandemic. The SRA recognizes that the legal sector's AML regulatory culture is becoming more advanced. Still, it emphasizes that any company without effective regulations, controls, and procedures (including accurate risk management at any level) is vulnerable to exploitation.
Technology
The SRA warned about the dangers of using emerging financial technologies, including fund transfer mechanisms and crowdfunding sites.
Any new software should be followed by the following:
- a risk assessment of the dangers they can pose
- successful risk reduction where necessary
Through Sanction Scanner AML Compliance solutions, you can make an accurate risk assessment suitable for the sector and your company and the basis of a risk-based approach in your company accordingly.
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