AML Risk Management System Audit in Estonia
As you might have read from our summary of the national AML risk assessment report, Estonia is exposing itself to high-risk levels of money laundering activities. Therefore, the local government has been and continues to make regulatory changes to ensure that the local business environment is less susceptible to money laundering. More regulations also mean more, and tighter supervision is needed to be done by the Estonian Financial Intelligence Unit and the Estonian Financial Supervision and Resolution Authority. This, on the other hand, raises the needs for financial organizations to have effective AML risk management systems which are constantly being updated and are in accordance with the law.
What is an AML Risk Management System?
An AML risk management system is a well-designed and thoroughly thought-out process that consists of policies, procedures, technology, and tactics that helps a business to operate within the required legal framework and to keep the risks of exploitation for money laundering low. Besides this, having a proper AML risk management system protects companies from fines, reputational risks, and disruptions in their daily operations.
Money laundering risks are usually lowered by having a defined screening process, customer risk-ratings, and by collecting necessary Know-Your-Client (KYC) data for transactions and managing these risks through constant monitoring with the help of technology and Customer Due Diligence (CDD).
Furthermore, it is important to have a clear knowledge of who is a high-risk client and what do you do when you identify such a client. A good rule of thumb is to at least have a working plan on how to deal with clients and matters that are included on the Financial Action Task Force (FATF) list and on the EU tax heavens list.
How Does a Risk Management System Audit Work?
An audit of the AML risk management system is a process which is done to identity weaknesses in anti-money laundering practices carried out by an organisation, its compliance to the current law, and receiving suggestions on how correct any errors if they were identified in the process.
We at RCA offer a service where we perform an audit of the risk management system of the obligated entity and our process is as follows:
- Practical assessment
First, we do a practical assessment of each client and the specifics of their business. A thorough understanding of the company’s business plan, clients and partners is very important to get the right overview before analyzing auditing the current AML systems.
A clear overview provides us with critical information about the potential risk levels that the company may be facing daily, and which aspects might have had important regulatory developments lately that might need immediate attention.
- Evaluation of current procedures
Next, we proceed to evaluate the effectiveness of the company’s current rules of procedure, policies, internal control rules and their used client due diligence and know-your-client measures. The most common weakness that companies have with their procedures is the fact that they do not have a clearly designed plan which they implement on each client. Most of the times, businesses are selective about the fact where, when and how they implement due diligence measures on their clients.
After we have identified all the possible weaknesses and areas of non-compliance, we make constructive recommendations based on the audit which we discuss with each client. Once an agreement has been reached on the improvements that will be implemented, we update and improve the client’s risk management system.
- Final evaluation
When the update has been made, the new risk management system goes under a final evaluation to see how it works under practical conditions. Lastly, we provide our clients the updated version of the rules of procedure, which is in accordance with the AML law and up to standard.
What Benefits Does an Audit Have?
- Improvement and development of procedures, policies, and controls to reduce the risk of money laundering and the risk of enabling it.
- Development of a risk-based approach to clients, which helps you to detect and prevent money laundering and suspicious activities.
- Obtainment of deeper knowledge of your business relationships, transactions and the level of risk associated with them.
- Making more conscious and data-based decisions about clients and retainers.
- Overall improvement in compliance.