Financial Institutions (FIs) are at an inherit risk of facilitating money laundering and terrorist financing as well as being exposed to broader financial crime. Governments seek to mitigate these risks within the financial system by placing specific legal requirements on FIs through regulation. Most money laundering regulations are developed from inter-governmental organisations and bodies who form and develop policies to identify and combat money laundering.

Regulated FIs have to conform to Anti-Money Laundering (AML) regulations which include controls regarding governance. Whilst all FIs are exposed to a level of risk in relation to money laundering certain institutions, such as payment institutions are exposed to less risk than banks and credit institutions.

The level of risk an FI will be exposed to in relation to money laundering will depend on the nature of the business they undertake, the nature of their clients and the locations they operate in. These risks can be mitigated by having a clearly defined and effective AML Risk Framework.

An effective AML risk framework must have board level ownership and oversight. Setting the correct “tone from the top” is a key element in setting out the parameters of an effective AML risk framework as well as instilling the correct level of awareness and control within the organisation.

Objective of an AML Risk Framework

To ensure that an institution is always fully compliant with the relevant legislation relating to financial crime and money laundering, and acts in a reputable way considering the interests of the wider community, the regulator and its customers, the FI should define and regularly review the parameters of its risk framework as well as the relevant AML policies and procedures. These documents will describe at a strategic level and guide at an operational level, the management of risk related controls created fo