What every compliance team should know to combat risk assessment challenges

report by RegTech firm Arctic Intelligence has detailed key actionable insights for how regulated companies can approach the risk assessment process.

The 2021 Anti-Money Laundering (AML) Benchmark Report was published earlier this year – a first of its kind for the company. What were some of the key takeaways from the report?

According to Arctic Intelligence CEO Darren Cade, one of the first important findings related to product risk, “Product risk was found to have the highest level of residual risk which indicates to us that regulated entities should be assessing products initially to ensure the controls are fit for purpose and continue to evolve them with every new product release.”

The report also discovered that almost 1 in 4 organisations find rolling out and managing the risk assessment process across teams the most challenging. This, Cade claims, is reflective of the same number of businesses who take up to half a year to complete their risk assessments.

It was also found in the 2021 report that jurisdictional risk is the driver of higher risk ratings overall, something which reinforces the need for additional or better controls when there are more foreign geographies.

Cade also highlighted that the company has made some significant progress over the course of the year, “Arctic Intelligence started 2021 with the biggest and most important release to its Risk Assessment Platform. We have built content models on feedback from the market and an appetite for more inclusive and wider business financial crime risk assessments.”

Arctic Intelligence equips firms with assessment models looking not just at the risks they are obligated to assess, such as ML/TFFraud and Sanctions, but those they are morally inclined to assess also, such as Modern Slavery and Wildlife Trafficking.

The firm has also revealed it has entered some ‘very exciting’ partnerships with CSI Web in the US, and PwC and ICA in the UK.

RegTech trends

Following the pandemic, the RegTech sector has undergone quite the transformation. The rapid move online following the imposition of lockdowns globally has led to a more digitally confident but also digitally reliant workforce compared to that of March last year.

According to Cade, these aren’t the only parts that have changed, “We are witnessing a shift as aggregators are enabling connectivity across platforms which provides businesses with more choice, flexibility, and can often accommodate a range of budgets. We are also seeing rapid growth for new FinTechs, which all require strong AML programs.”

Cade mentioned there is also increasing regulation for crypto and blockchain companies as the sector matures – something which creates opportunities for multiple, specialised RegTechs.

He also claims the industry is seeing more compliance-as-a-service providers, a development which he believes comes with its own risks as ‘less mature markets and compliance teams may not sufficiently factor that risk in’ so such a move should be done with caution.

While the pandemic affected companies globally, there is much to be said on how the period benefitted RegTech companies.

According to Cade, the pandemic has helped Arctic Intelligence in terms of better understanding the challenges companies face in the risk assessment process. He said, “Covid-19 has helped us realise the extent of the challenge firms face with the risk assessment process as many struggle to make updates due to the frequent changing environment. Many firms were undertaking digital transformation projects and are now ready to prioritise and digitise the risk assessment process.”

In the medium-to-long term, Cade stated Arctic Intelligence is looking to raise greater awareness of tools and platforms specifically designed for AML and FinCrime assessments.

He commented, “Spreadsheets and email haven’t been the tools of choice, but the tools due to a lack of choice. Long term, we want to see financial crime teams utilising our platforms for wider, more detailed reporting on a more frequent basis.  Ongoing monitoring of customers and transactions is essential in the fight against financial crime, but the parameters of such controls need to be set following an assessment of those risks.”

Earlier this year, the European Commission unveiled a package of legislative proposals to strengthen the European Union’s AML/CFT rules. These included a new EU AML/CFT authority called AMLA, that will help to coordinate national authorities to ensure the private sector applies EU roles consistently and correctly. Another proposal involved a single EU rulebook for AML/CFT that will include, amongst other things, more in-depth rules of the areas of CDD and beneficial ownership.

The proposals would also suggest a sixth directive on AML/CFT, a revision of the 2015 Regulation on Transfers of Funds to trace cryptoasset transfers and an EU-wide limit of €10,000 on large cash payments.

The closing date on the EC’s various consultations on the proposals was October 6.

Copyright © 2021 RegTech Analyst

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