The Risk Based Approach

Our firms are required under the Regulations to put in place internal risk based policies and procedures. There are essentially two different risks that regulated business faces.

  • The risk that your business itself might become directly involved in money laundering or terrorist financing, for example through money services or acting as a professional advisor

No business would like to be charged with a primary money laundering offence such as facilitating money laundering and this is why it is so important that you identify whether your activities and services could be used by money launderers.

The other risk is

  • The risk that your customers might be involved in money laundering, for example in relation to their possession or use of money or other assets which are the proceeds of tax evasion or other criminal activity. Although you may not be used directly by the money launderers you could become involved in a firm that is laundering money such as a TCSP when you work as a registered office address.

In order to have an effective risk based approach firms have to understand the different types of money laundering risks. So based on the two primary risks firms will look to their individual requirements to ascertain their individual risks. Whereas there are many risks the ones most important to the regulated firm are:

  • Regulatory Risk – the risk of penalties by a supervisor
  • Reputation Risk – the damage dome to the firms’ good name
  • Credit risk – the risk of not getting paid
  • Legal Risk – the risk of legal action being taken against the firm
  • Financial Risk – the cost financial of the above and compliance itself

This is what your nominated officer and senior management have to take into account. They are looking at understanding where risk may appear from and then how to effectively manage those risks.