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Legacy AML risk assessment models not up to challenge of evolving risk management

Johannesburg, 19 Feb 2024
Anthony Quinn, Founder and CEO, Arctic Intelligence.
Anthony Quinn, Founder and CEO, Arctic Intelligence.

Manual risk assessments using Excel spreadsheets or Word documents are no longer up to the challenge of effectively managing anti-money laundering and combating the financing of terrorism (AML/CFT) risk.

This is according to Anthony Quinn, Founder and CEO at Arctic Intelligence, whose advanced financial crime risk assessment platforms AML Accelerate and the Risk Assessment Platform are available in South Africa through a new partnership with Bateleur Software.

Quinn says: “At the heart of any AML programme is the enterprise-wide money laundering and terrorism financing risk assessment. Organisations must understand how organised criminals could exploit their business; they need to implement controls to mitigate these risks and they must continually assess whether these controls are fit for purpose and whether they are implemented and operating effectively. It should be a continuous loop.”

In an ideal environment, organisations should work towards achieving a holistic, real-time view of the entire enterprise’s risk profile and control gaps. However, very few organisations are close to this level of maturity, with most struggling to digitise away from spreadsheets and interim steps to automating this process, says Quinn.

“In our experience working with over 100 financial institutions and gaming firms, very few are at the mature end of the spectrum. Many are still doing risk assessments manually on spreadsheets just once a year – a process that can take months each time.”

For large financial institutions, the challenges around risk assessments are compounded by the multitude of risk indicators to be considered. Quinn explains: “The onus is on them to identify and assess their money laundering risks around where customers are, what entity types their customers are, what proportion of their customer base is high risk and the characteristics of various products and the risks associated with these. In addition, they must consider the channels through which products are taken to market, any third-party intermediaries, types of transaction activity and country risk profiles in different jurisdictions. There are also internal risks to assess. So, the challenge is to build a methodology and framework that is logical, explainable and defendable.”

Another challenge is a lack of standardised, reliable, accurate and complete data to be used in their risk assessments, he says.

Smaller and mid-sized businesses are challenged by a lack of resources to comply with AML/CFT legislation.

Lizette Sander, Product Manager at Bateleur Software, adds: “South Africa’s AML/CFT regulations also apply to designated non-financial organisations. So, any organisation must know who they are dealing with, but most don’t have the capacity to screen customers.”

To overcome these challenges, organisations would be wise to move towards advanced modern platform-based risk assessment, they say.

Quinn says: “Most organisations don’t know where to start. They may be using a spreadsheet developed in-house or by a consulting firm decades ago, but this is not fit for purpose in this day and age. They can’t explain it to the board or to the regulator. They need to look at whether the process is logical, sound or defendable.

“In addition, most banks only have around 100 risk indicators, which don’t really reflect the complexity of the risk across their enterprises. At Arctic Intelligence, we spend a lot of time working with advisory partners helping organisations deconstruct their manual methodologies and reconstruct them digitally,” he says.

Lizette Sander, Product Manager, Bateleur Software.
Lizette Sander, Product Manager, Bateleur Software.

Quinn notes that another factor set to drive change in risk assessments is the expectation that regulators will move towards prescribing standardised approaches to risk assessment and reporting.

“There has been talk of standardising risk assessments, with a minimum standard of risk indicators. It’s a space that’s ripe for disruption,” he says.

Arctic Intelligence platforms calculate the risk profile and highlight high-risk areas and control gaps, including a historical audit trail, slashing the time required for risk assessments.

Arctic Intelligence’s Risk Assessment Platform is purpose-built for larger, complex organisations that must identify, assess, mitigate and manage financial crime risks. Our subject matter experts have developed risk and control libraries for various financial crime risk domains, including money laundering and terrorism financing, sanctions, bribery and corruption, fraud, modern slavery, wildlife trafficking and correspondent banking.

Arctic Intelligence’s AML Accelerate is a cloud-based risk assessment solution tailored to four main industry sectors – financial services, gaming, gatekeeper professions, including lawyers, accountants and real estate agents, as well as dealers in high-value goods such as art or cars. It covers numerous indicators and includes an AML/CFT programme/policy aligned to laws in over 40 countries, including South Africa. The solution is designed to help even small and mid-size businesses comply with AML and CFT laws.

Quinn notes that this is the Chinese Year of the Wood Dragon, which, according to the Chinese zodiac, signifies a period of evolution and improvement. “It is a good time to break away from old patterns and embrace new ones,” he says.

Sander says AML Accelerate and the Risk Assessment Platform, both now available via Bateleur Software, will help local organisations overcome key challenges and evolve their risk assessment capabilities. “We are honoured to have been chosen as an Arctic Intelligence reseller partner. We believe this is next-level software bringing a new dimension to the fight against money laundering. Bateleur is a reseller of world-class technology, and this falls into that gambit,” she says.