New Risk Factor Guidelines to Strengthen Financial Crime Detection

The European Banking Authority (EBA) recently published its updated money laundering (ML) and terrorist financing (TF) risk factor guidelines.

In this updated version, the EBA strengthens the requirements on both individual and business-wide risk assessments and customer due diligence measures, including new guidance on the identification of beneficial owners and the use of “innovative solutions to identify and verify customers’ identities”, amongst other updates.

In addition, the EBA included new sectoral guidelines for crowdfunding platforms, corporate finance, account information service providers, and payment initiation services providers and firms providing activities of currency exchange offices. The revised guidelines also provide more details on terrorist financing risk factors.

Risk sensitive measures

Perhaps not surprisingly, the EBA noted respondent feedback concerning the challenges of complying with anti-money laundering/combatting the financing of terrorism (AML/CFT) requirements whilst ensuring the likes of financial inclusion. This highlights the challenges that come with the provision of financial services to, “individuals from low income, unserved and underserved groups”.

Addressing this, the EBA reinforced that there is no requirement for financial institutions to “discontinue services to entire categories of customers that they associate with higher ML/TF risk (i.e. de-risking).

Guidelines do not prevent firms from establishing a correspondent banking relationship with a respondent situated in a high-risk third country, provided that the risk is mitigated through enhanced due diligence measures.

The European Banking Authority.

Contextual, risk-based decisioning

Underpinning this and noted throughout the guidelines are the principles of “taking a holistic view,” applying “risk-sensitive decisions” and taking into account “wider, contextual factors” that could influence ML/TF risk profiles. The guidelines also highlight the usage and application of “weighted risk scores” and “mitigating factors” to ensure the application of genuine risk-based decisioning.

The above principles are all inherent in the compliance and financial crime solutions provided by Quantexa, known collectively as Contextual Decision Intelligence. This concept of automated Contextual Decision Intelligence, powered by world-leading entity resolution and network generation, is now implemented in more than 70 countries.