Posted: 24th October 2016

First featured in the BSA's Associate Knowledge

Statistics arising from financial crime studies across the globe show an increase in firms’ spending on regulatory compliance.

These costs continue to rise, and a recent survey featured in Risk Magazine shows that 48% of firms estimate they will increase spending on financial crime compliance by 1-20% in 2016/17.

Given some of the figures emerging about the prevalence and cost to society of financial crime, and much regulatory change in the area, including the new ‘failure to prevent’ corporate offences, the 4th Money Laundering Directive, REP-CRIM reporting and the Senior Managers Regime, it’s easy to understand this trend.

With so much emphasis being placed on firms’ effective management of financial crime risk from a consumer protection point of view, and the desire of firms to ensure spend on compliance is proportionate, what should they be doing to reconcile all of the above and get a clear view of the required direction of travel?

The answer is an effective and robust financial crime risk assessment, which is now a legal requirement for firms.

In performing their assessments, firms should seek to ensure a meaningful and tangible link between the assessment of inherent risk, internal controls and the overall residual risk rating. This subsequently allows resource to be directed to key areas of risk aligned to the firm’s overall risk appetite.

Firms looking to establish a best-practice approach to their internal view of financial crime risk should consider the following:

  • How do you ensure the time and resource invested into your risk assessment is adding value?
  • Are you focused on a proportional, risk-based approach that seeks to protect customers while remaining business-enabling?
  • How close is the board to financial crime MI, their MLRO and Risk Committee?
  • Can you produce sufficient evidence of an effective risk assessment? Rigorous record keeping and being able to justify why decisions were or weren’t made in light of assessment results could be imperative to satisfying regulatory scrutiny
  • As well as gaining assurance via risk assessment, are controls periodically examined in order to ensure they continue to perform?

Huntswood has released a report on financial crime risk assessments. Based on research with a cross section of firms, the report offers guidance, outlines good practice and highlights practical steps that firms can take to embed a proportionate, pragmatic and dynamic approach.

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