ࡱ> x( `/ 0DArialNew Romantt8 0"DTimes New Romantt8 0@ .  @n?" dd@  @@`` 1:(/3 7 -#8:;<=?@ACDEHIJKLTUVWX\]_ghklmprt! !# ! ##! %#  H 0AA@33M@eʚ;4ʚ;g4BdBd 0ppp@ <4dddd@w 0t j0___PPT10 *___PPT9 `6< E$m(gn+Enhanced Due Diligence Risk Based Approach,,7G+ UW%Key Element (International Standards)&&(%  Risk-based approach to CDD  The level of KYC depends on the Money Laundering or Terrorist Financing risk posed. >rpZFdZ fr 'Risk-based Approach and the KYC Process(((' 5 Simplified Due Diligence? Enhanced Due Diligence?2 'Risk-based Approach and the KYC Process(((' Simplified or Enhanced Due Diligence? Simplified CDD Level 1 - Tick-box / Red-Flag Check Limited CDD Level 2 - Public Record Research Standard CDD Level 3 - Public Record Research Limited Source Enquiries Enhanced CDD Level 4 - In-depth Public Record Research & Enquiries Specific issues The Risk-based approach requires a levelled approach to CDDPPd&  E<L; ^`Risk-based Approach( Risk-based Approach = Simplified Customer Due Diligence for Low Risk clients and Enhanced Customer Due Diligence for High Risk clients is required ML risks should be addressed ML risks need to be rated, monitored and managed in the most efficient way p" PFdp" PFd" S  wEvaluating the risk assessment program in place is now essential to know if the Bank AML compliance program is sound. VU How do we perform risk assessment? Do we have the right tools to do the job? How does the risk assessment program define and score the risks of products? Customers? And jurisdictions? How do we develop risk based matrices? With or without the help of outside vendors? (  WT)Is there enough guidance in this subject?**''How to Build the Risk Matrix?(XX Risk Matrix~Building a risk matrix is a collaborative effort between: The Compliance Unit The Economic Center The Business Units The Management Information Services (MIS) Department IT Division Others& . N:ZZZ YY Risk MatrixA Risk Matrix is built to: Assess Risks Capture identified risks Estimate their probability of occurrence and impact Rank the risks based on the above information. v0  ,(( Risk MatrixuAction Plan: Document how the identified risks will be handled Track the effect of this action on associated risks. N i 5&)+ AML Risk Assessments Development!!*) 1. Planning :Assign a project manager Select the risk assessment team (should include representatives from all areas of the AML compliance program, and not only technical experts) Set forth ground rules and determine the supporting risk management tools, such as the Risk Matrix application, MIS reports, collected information.z;Z @&+*.2. Identify Program Objectives or Requirements//(Examples: Prioritize customers according to their risk levels for monitoring purposes Set Policies & Procedures to mitigate risks& y y,,3. Define Risks+Phase 1 Identify Risk Categories/Factors : # psMain Risk Factors  Address the controls needed in each business line (Retail, Private Banking& ) based on the risks posed by: The products and services that these businesses offer The customer base to which these services and products are offered The geographic locations of the customer base or the geographic locations where the products and services are offered. 6jj--Phase 2: Identify Risk variables: We need to assess further the risks within each factor that is identified in phase 1. The risks are not always the same for a particular product, service, or customer; which is relative to the Risk Variables/ Scoring Factors. Z o Y[\Risk Scoring Elements  \^These variables may increase or decrease the risk posed by a particular customer or transaction, for example: The level of regulation or governance regime to which a customer is subject. (A customer is located in a high regulated jurisdiction poses less risk than a customer located in a low risk jurisdiction) Type of the entity: publicly owned entities pose less risk than private entities The use of intermediate = Anonymity Zn>n q..The duration of the relationship. Long standing relationships involving frequent client contact throughout the relationship may present less risk from a money laundering perspective. The level of assets to be deposited by the particular customer or size of transaction undertakenBa 900Purpose of the account Actual or anticipated activity in the account Nature of the customer relationships (face-to-face contact versus electronic banking). Nature of the customer s business Types of products and services used by the customer *114. Ranking Risks 2 Define the level of risk assigned to each factor (3 $& ~ Risk Scoring  Rating Example   Rating Example (Customer Risk)  22bRelationship between knowledge and risk: It is an inverse proportionate relationship between the risk & knowledge: If a business activity is KNOWN to be HIGH risk, this knowledge can be used to avoid/eliminate this business or take appropriate action plan to move to MODERATE or LOW risk. Lack of knowledge means: LOW risk business activities cannot be distinguished from HIGH risk business activities Low, Moderate risk business may become high if left unmanaged Obtaining reliable knowledge about business activities requires: Expertise Time Testing & analysis Cost (investment in software and staff) u!P PPPBPJPPP'MB  J  555. Risk Management \Action Plan: (1) Decisions for handling the risks may vary: MODERATE to HIGH risks may require mitigation strategies (close monitoring, apply EDD& .) LOW risks to be watched.< 0r 66HThe adequacy of an institution s risk management is measured by the following factors: Active board and senior management oversight: An institution with strong risk management indicates that management effectively identifies and controls all major types of risk posed by the relevant activity or function. The board and management participate in managing risk and ensure appropriate policies & limits exist, and the board understands, reviews and approves them. (2) Adequate policies, procedures and limits should be in place. For example, the Policy & Procedures must include definition of the  Acceptance level of risk policy, risk profile levels & their definitions.WZZ." ZJ" ZZW.:qL7      77j(3) Adequate monitoring: Application of different level of Due Diligence in accordance with risk levels. :Q Q(4) Adequate management information systems (MIS): Availability of reports and MIS tools that provide the necessary information and analysis to make timely and appropriate responses to changing conditions. 43388'(5) Internal Control System: There is strong risk management when there are few exceptions to established policies & procedures, and none of these exceptions would likely lead to a significant loss to the institution. Lack of proper internal controls will yield to high risk and bad surprises.>L 99 The deficiencies associated in these systems could have adverse effects on the safety and soundness of the institution or could lead to a material misstatement of its financial statements if corrective measures are not taken. B AA'6. Human Fallibility and Security Risk 4(#$sShould be included in the Risk Matrix: for breaching confidentiality not abiding by the bank policies & procedures.&'M'MBB7. Managing Action Plan Action plan to mitigate the risks should be documented in the Risk Matrix with details. The Action Plan should be reviewed and assessed periodically (weekly or monthly), and the risks rankings will be adjusted accordingly.CCK8. Updating AML Risk Assessment Development/ Continuously Assessing Risks  LJ(An effective risk assessment should be an ongoing process, not a one-time exercise. Management should update its risk assessment to identify changes in the bank s risk profile, as necessary. Risks should be reassessed to determine whether their level of importance has changed or whether new risks have developed that should be identified, assessed, ranked, and managed. nuZ*\k QDDFor example, update Risk Assessment for the following: New products and services introduced Existing products and services changes High risk customers opened and closed accounts Expansion through mergers & acquisitions&77(How often should the program be updated?))(As a sound practice, the institution should update this process at least once a year, as the TREND of risk is the probable change in the institution s risk profile over the next 12 months. The TREND can be ascending, descending or stable.EE9How Institutions Should Ensure Complete Risk Assessment? ,:7 ((Ensure the points we reviewed earlier Involve the Management and obtain their approval on the AML risk assessment, the resulting AML program, and the plan of action 6" " IIAUDIT PARTICIPATION The Audit role should be taken seriously in evaluating  Risk Assessment and  Risk Management . Examine accuracy of risk assessment development Report deficiencies, and follow up on corrective measures.JJSTAFFING & TRAINING Management should consider the staffing resources and the level of training necessary to increase awareness and knowledge Define risk properly and manage risk Promote adherence to bank policies & procedures LLCLOSING  ) Start the program if still not available**(qt Questions?   ruThank you for your attention Samar Baasiri, CAMS Head of Compliance Dept Bankmed, MIB & SLB SAL ACAMS Advisory Board Member baasiris@bankmed.com.lb X8PP, K " {hk4. Case Study - Background  An offshore financial institution incorporated in Bermuda is looking to provide a structured finance loan to a group of investors. The country into which the funds will flow and in which the project will be carried out are the Ivory Coast and East of Europe countries. The sector in which the transaction is due to take place is the construction sector and therefore inherently a high money laundering risk. It is unclear whether the directors and shareholders of the company are the beneficial owners. Rumours have been identified in the public record suggesting that the two businessmen and the company are linked to a PEP and that the foreign bank involved in the transaction is a pocket bank of the same PEP. 0PP 'D@?dZ il4. Case Study - Background The transactional structure presented by the customer is very complex and the reasoning behind the complexity and non-transparency is unclear. A number of companies within the structure have not yet been incorporated and are  work-in progress . j #a jmN4. Case Study  Results of Risk-Scoring(('  F`" Fd  knN4. Case Study  Results of Risk-Scoring(((' 8Enhanced CDD  Level 4 Simplified CDD Level 1 - Tick-box / Red-Flag Check Limited CDD Level 2 - Public Record Research Standard CDD Level 3 - Public Record Research Limited Source Enquiries Enhanced CDD Level 4 - In-depth Public Record Research & Enquiries Specific issues The Risk-based approach requires a levelled approach to CDDPPd  E<L; lo24. Case Study  The Brief  Aware of the provision of guidelines in terms of the documentation & verification required in order for the Bank to be compliant with the money laundering legislation the Bank is subject to. Based on the guidelines the issues which needed to be addressed should be defined. Based on the issues defined research and enquiries in all the relevant jurisdictions should be undertaken.0P8  (  9 mp4. Case Study - Approach The scope of research should be divided into two phases: Phase I - involve public record research into all parties (individuals and companies) involved. This also included an overview of the business networks and associations of the businesses and the individuals. Phase II - given the low profile of the individuals that could be available in public records, a series of discreet enquiries within the local business communities in which the individuals are active should be undertaken in order to ascertain their overall business reputation and to ascertain whether there is indeed any substance to the allegations of their business being a front-operation for a PEP.90P0Pi0P9   a x nq@4. Case Study  Expected Outcome!!(   On the basis of the enhanced CDD that should be undertaken, the Bank could cross-reference the information provided by the customer to verify the claims made by the customer independently Could confirm the identity of the beneficial owner and determine the reasoning behind the complex transactional structure The Bank would be in a position to disprove any rumours which had been voiced about links and front operations for a PEP The exercise provides a complete and comprehensive documentation trail and supporting case within the scope of the CDD process The exercise enables the Bank to decide on the level of ongoing monitoring, given the risks are classified as high. 0PPOZ,n8 '!]+ or 5. Summary   %Risk-scoring defines the level of CDD required Beneficial Ownership and PEPs are key Advantages: Institutions can mitigate their own risk exposure through the risk-based approach and risk exposure Risk-Scoring also enables institutions to develop benchmarks and risk rating parameters >0  &    e  Z  $  4  *0.J   z(High risk products and services Examples))(The following examples are sample of high risk products that are vulnerable to ML & TF: Facilitate a higher degree of anonymity Involve the handling of high volume of currency. Rapid transactions speed Wide geographic availability&YY{(High risk products and services Examples))( Wire transfers: Correspondent Banking: (Factors to consider) Account purpose Location of the respondent bank Nature of the banking license The respondent money laundering detection and prevention controls The respondent bank regulation and supervision in its country6=/|(High risk products and services Examples))(Electronic Banking: ATM Internet bank services (including credit cards, loans, deposits, wire transfers, and bill paying services).0pp}(High risk products and services Examples))(Private Banking Relationships: It is critical to understand the client s source of wealth, needs, and expected transactions. Private banking relationships can be complex PEPs: Senior foreign public officials are also private banking clients: transactions that may involve the proceeds of foreign official corruption. 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Planning/2. Identify Program Objectives or Requirements3. Define RisksMain Risk Factors Slide 18 Slide 19Risk Scoring Elements Slide 21 Slide 22 Slide 234. Ranking Risks  Risk ScoringRating Example Rating Example (Customer Risk) Slide 285. Risk Management Slide 30 Slide 31 Slide 32 Slide 33 Slide 34(6. Human Fallibility and Security Risk 7. Managing Action Plan L8. Updating AML Risk Assessment Development/ Continuously Assessing Risks Slide 38)How often should the program be updated?:How Institutions Should Ensure Complete Risk Assessment? AUDIT PARTICIPATION STAFFING & TRAINING CLOSING Slide 44 Slide 454. Case Study - Background4. Case Study - Background(4. Case Study Results of Risk-Scoring(4. Case Study Results of Risk-Scoring4. Case Study The Brief4. Case Study - Approach!4. Case Study Expected Outcome 5. 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