Client risk assessment

Client Risk Factors:

Risk factors as they pertain to clients can cover a few different segments,

Business Complexity: 

The client's organisational structure must be evaluated to understand the multiple layers of management and operations. The sophistication of the business model needs thorough assessment to identify potential risks. Multiple business locations or divisions require careful review to ensure consistent oversight. Cross-border operations demand special attention due to varying regulatory requirements. Industry-specific risks must be considered as different sectors present unique money laundering vulnerabilities.

Ownership Transparency: 

All beneficial owners must be identified and verified through reliable and verified documentation. Ownership percentages need to be verified to understand control and risk exposure levels. The corporate structure should be mapped to reveal all relationships and connections. Control mechanisms require a thorough understanding to identify who makes key decisions. Changes in ownership must be regularly reviewed and documented, as they could change the client's risk profile.

Cooperation Level: 

The client's willingness to provide information indicates their transparency and compliance attitude. Long response times to information requests can signal potential concerns or reluctance. The documentation quality helps assess the client's professionalism and commitment to compliance. Communication consistency needs monitoring to identify any concerning patterns. Previous cooperation history helps establish a baseline for expected behaviour.

Transaction Patterns: 

Transaction volumes must be analysed to identify unusual activity. Payment frequencies require review to establish standard patterns. Transaction sizes need assessment to spot unusual variations. Payment methods should be monitored for consistency with business type. Transaction destinations require evaluation to identify high-risk jurisdictions.

Historical Behavior: 

Past business conduct provides insight into future risk levels. Previous risk assessments need review to track changes over time. Behavioural changes must be monitored as they might indicate new risks. Relationship duration helps understand the client's stability. Past concerns require documentation to inform future risk assessments.

Geographic Risk Factors:

Operating Locations: 

Each business location must be identified to understand geographic exposure. Regional risk levels require assessment based on local conditions. Cross-border activities need review for compliance with multiple jurisdictions. Local business practices should be evaluated against international standards. The political stability of operating regions requires consideration for risk assessment.

Regulatory Environments: 

Local regulations must be thoroughly understood to ensure compliance. Regulatory enforcement levels need assessment to gauge effectiveness. Compliance requirements should be reviewed across all jurisdictions. Regulatory changes require constant monitoring for impact on operations. Supervisory effectiveness needs evaluation to understand regulatory risk.

Corruption Levels: 

International corruption indices must be checked for each operating location. Local corruption reports require review to understand regional risks. Industry corruption risks need assessment within each market. Political developments should be monitored to determine the impact of corruption levels. Enforcement effectiveness requires evaluation to understand actual risk levels.

Financial Action Task Force (FATF) Jurisdictions: 

Regular checks against FATF lists must be conducted for all operating regions. Jurisdiction status changes require monitoring for risk adjustment. Operational impact needs assessment when dealing with listed jurisdictions. Specific regulatory requirements must be reviewed for FATF-listed areas. Enhanced due diligence considerations need evaluation for high-risk jurisdictions.

Service Risk Factors:

Product Complexity: 

Service sophistication levels must be evaluated for inherent risks. Customisation levels require assessment for unique risk factors. Service combinations need to be reviewed for cumulative risk impact. Risk exposure should be considered for each service type. Service evolution requires monitoring for emerging risks.

Transaction Volumes: 

Transaction frequency patterns must be analysed for unusual activity. Value patterns require review to identify suspicious trends. Seasonal variations need assessment to establish standard patterns. Growth trends should be monitored for unexpected changes. Unusual patterns require evaluation for potential risk indicators.

Delivery Methods: 

Each delivery channel must be assessed for specific risks. Online services require review for cybersecurity vulnerabilities. Face-to-face contact levels need evaluation for verification purposes. Third-party involvement should be monitored for additional risks. Delivery risks require regular assessment for changing threats.

Client Interaction Channels: 

Communication methods must be reviewed for security and verification. Remote interactions require assessment for additional risk factors. Verification processes need evaluation for effectiveness and reliability. Digital channels should be monitored for security vulnerabilities. Authentication methods require consideration for fraud prevention.

UK supervisory body templates

Some UK accounting bodies have their own risk assessment templates. This can make it easier to follow their requirements rather than create your own. These can all also be accessed using the Firmcheck software. The following links are to the available UK supervisory body risk assessment templates:

• ACCA

Conclusion

Effective AML risk assessment requires continuous attention to multiple interconnected factors, each contributing to a client's or business relationship's overall risk profile. By systematically evaluating and documenting these components, firms can develop a robust understanding of their risk exposure and implement appropriate controls. Regularly reviewing and updating these assessments ensures that firms comply with regulatory requirements while protecting themselves against money laundering risks. Remember that risk assessment is not a one-time exercise but an ongoing process that requires regular review and adjustment as circumstances change.