Essay Example on The increasing and continuous efforts to prevent financial crimes









The increasing and continuous efforts to prevent financial crimes placed a significant weight on the adoption of a Risk based approach RBA Its definition can be found at FATF s Risk Based Approach Guidance for the Banking Sector as a system whereby countries competent authorities and banks identify assess and understand the money laundering and terrorist financing risk to which they are exposed and take the appropriate mitigation measures in accordance with the level of risk In the same line the Law Society explains that the RBA is an approach which allows professionals to direct resources to meet money laundering risks where they are the greatest whereby financial crimes can be more effectively targeted On the opposing side some might argue that a Rule based approach which is solely based on prescriptive rules and does not consider the risks inherent to each party can be equally efficient to prevent money laundering and terrorist financing However when analysing the flexibility given to countries and institutions to design their own strategy considering its specificities and risks we can understand why its applications is constantly increasing 

This also explains why the fourth EU Money Laundering directive puts such emphasis in adopting a RBA and the United Kingdom considered in its review of the current AML CTF regulations that a RBA is more effective than a Rules based approach which merely focuses on ticking boxes In the UK all business which are regulated by the Money Laundering Regulations must implement a risk based approach in order to prevent money laundering They must assess the areas in which their business can be exposed to risks and decide where they must allocate measures to prevent it The assessment of risks must consider the structure and size of the business the nature of the products and services the business supplies and the activities the business carries The rationale behind a RBA lays on the fact that its implementation allows business to build a strong foundation for its AML CF framework which is made to measure and adaptable to each target thus combating proportionally and more effectively money laundering risks This unique methodology of assessing risks helps businesses to decide on the level of threat and to implement measures to mitigate these risks and establish the risk levels for the ongoing due diligence on customers It also allows controls to be allocated in accordance with the degree of risk which means that when more risks are identified more controls will be in place

Therefore the adoption of a RBA is directly linked with the ability to ensure that business have measures to prevent or mitigate money laundering and terrorist financing which are commensurate with the risk identified and that resources are allocated in an effective way taking into consideration the risk appetite of the business A successful RBA can only be achieved if core requirements are followed In its guidance the FATF provides a broad framework which sets out principles and procedures with the aim of aiding institutions to implement a successful RBA Also the UK Joint Money Laundering Steering Group JMLSG Guidance offers a direction on which requirements are essential for the RBA Firstly business should assess and identify their ML and TF risks Through this businesses must consider all relevant risk sectors before setting their levels of risk Subsequently institutions need to record their findings and to document the rationale used in the assessment It is also mandatory that the assessment is proportional to the risks and size of institutions The second step is the risk management and mitigation which means that procedures and policies must be in place to help institutions to manage and mitigate effectively the risks that have been identified These documents must be approved by senior management and they must reflect the risk assessment 

All staff must be aware and compliant with these policies and for this reason training must be provided to all staff Moreover a monitoring process needs to be implemented so any changes i e regulatory changes can be considered and taking into consideration when evaluating the risk profile of the company The benefits of adopting a RBA are various The degree of flexibility allowed when adopting a RBA provides for firms to have a choice on where to concentrate their efforts It is not always an easy option but it allows financial institutions and their senior management to place controls where more risks are identified and to manage those risks in a manner that might seem suitable to the institution in cost effective manner It is therefore a great deal of responsibility on the managerial side but it also allows a degree of freedom on how to manage and prevent risks Additionally businesses are free to decide on the procedures and policies to be implemented to manage and mitigate risks without a dependency on external parties They can also amend their procedures to match a particular risk circumstance Finally senior members can decide on how to allocate the institution s resources by placing more personnel money and research in areas where risks are higher which also leads to a more efficient financial budget Thus we can conclude that the RBA is a very useful method for business to address their risks and adopt proportionate controls to prevent money laundering allowing senior management to implement an efficient and cost effective risk management

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