The biggest challenge that compliance teams face with their money laundering and terrorist financing (ML/TF) risk assessments are gathering the data and evidencing effectiveness.
This finding comes from Arctic Intelligence’s new AML Industry Benchmarking Report 2022, which can be downloaded for free here.
The report stated that 48% of respondents to its survey highlighted this data collection as the biggest challenge. It was followed by developing ML/TF risk assessment methodology (47%) and understanding regulatory obligations (32%).
The second annual report builds on its predecessor, which was released in 2021 and downloaded by thousands of people across the financial crime ecosystem.
The new report takes a deeper look into EWRAs using aggregated data from hundreds of risk assessments and hundreds of survey respondents.
As part of building the report, Arctic Intelligence has taken anonymised inputs from its clients and gathered the insights from 157 respondents from 41 countries, with Australia, Hong Kong and the US having the most respondents.
The report was created to help businesses better understand and implement enterprise-wide financial crime risk assessments. It stated that while money laundering and terrorism financing laws apply to millions of businesses across over 30 industries and over 200 countries, there is no industry standard on how to apply a risk-based approach.
A risk-based approach means a regulated company needs to identify and assess financial crime risks. It then needs to implement, monitor and improve the control framework to mitigate and manage the risks.
While regulators offer advice on what constitutes a risk, there is a gap in understanding of how they can uncover this. Arctic Intelligence stated, “The how involves designing an appropriate ML/TF risk assessment methodology, determining the risks to assess, deciding what controls to implement that are appropriate and proportionate to managing the risks and testing the design and operational effectiveness of these controls.”
Unfortunately, many regulated businesses struggle with understanding the how. The AML Industry Benchmarking Report 2022 helps unpack the how and help firms be better placed with their risk assessments.
Another key finding from the report was that 33% of survey respondents refresh their ML/TF risk assessment every year, while 9% refresh it every two years. Surprisingly, 8% refresh it every six months and 33% do it whenever there is a change.
The report also states that there is a dramatic reduction in time taken to complete ML/TF risk assessments for those using Arctic Intelligence, compared to others. It boasts an average of 23.5 days for users, which is compared to non-users. Non-users report the risk assessments take anywhere up to three months (49%) up to six months (13%).
The AML Industry Benchmarking Report 2022 also explores the role RegTech has in uplifting risk management capabilities. It also explores the top-line inherent risk, control effectiveness, and residual risk ratings, and more.
Download the report for free here.
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