Inherent risk

Inherent risk within the context of an AML risk assessment in the UAE or DIFC refers to the exposure to potential AML/CFT risks that an institution faces before considering the impact of any mitigating controls. This risk reflects vulnerabilities that may arise due to factors such as the nature of business activities, customer profile, geographical presence, and products/services offered.

Step-by-Step Approach to Identifying Inherent Risk:

1. Identify Risk Categories: Customer Risk: Evaluate customer types, including high-risk categories like politically exposed persons (PEPs) and customers from high-risk jurisdictions. Geographical Risk: Assess the exposure to regions known for weak AML controls or high incidences of corruption or terrorism. Product/Service Risk: Identify products/services that are more susceptible to money laundering or terrorism financing, such as wire transfers, trade finance, or virtual assets. Delivery Channel Risk: Analyze risks associated with how products and services are delivered, e.g., online versus face-to-face.
2. Evaluate Business and Transactional Activities: Review the scope of business operations, including international trade and any affiliations with sectors prone to PF (proliferation financing).
3. Examine Internal and External Audits: Use historical data from audits, quality assurance checks, and STR/SAR (Suspicious Transaction Report/Suspicious Activity Report) submissions to gauge potential gaps.
4. Incorporate Sector-Specific Risk Insights: Utilize guidance from the CBUAE, DFSA, and EOCN on inherent PF and TF risks, and ensure consideration of red flags specific to the financial sector.
5. Assess Historical Incident Reports: Review past suspicious transaction reports and investigations to identify patterns that highlight vulnerabilities.

illustrations

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