The risk framework within the Banking Institutions

Banking Institutions were always vulnerable and exposed to ML/TF risk as the primary location where the criminals used first for the placement stage of Money Laundering cycle and secondly for the layering and integration stage. During the last years we were witness of serious ML/TF breaches from world-wide Banking Institutions, with hefty fines from the Regulators being imposed against the offenders.   

In reality and deriving a guidance from FATF’s RBA in the Banking Sector (2014), Banking Institutions encompasses a wide range of financial products and services, which are associated with different ML/TF risks. Let’s start with a summary of Banking Services usually offered from a traditional Banking Institution, setting apart technology driven Institutions like Electronic Money Institutions or Payment or Virtual Assets Service Providers.

These include, but are not limited to:

-Retail banking: where banks offer products and services directly to personal and business customers, such as current accounts, loans and savings products,

-Corporate and investment banking: where banks provide corporate finance and corporate banking products and investment services to legal persons and entities,

-Investment services (or wealth management): where banks provide products and services to manage their customers’ wealth (sometimes referred to as private banking),

-Correspondent services: where banking services are provided by one bank to another.

Examples of ML/TF risk associated with different banking activities:

Retail banking: provision of services to cash-intensive businesses,

the volume of transactions,

high-value transactions,

diversity of services.

Wealth management: culture of confidentiality,

difficulty to identify beneficial owners,

concealment (use of offshore trusts/foundations/shell companies),

banking secrecy,

complexity of financial services and products,

PEPs,

high value transactions,

multiple jurisdictions.

Investment banking: layering and integration favourable,

transfer of assets between parties’ in exchange for cash or other assets,

global nature of markets.

Correspondent banking: high value transactions,

Sanctioned (OFAC, UN, EU) underlying customers,

limited information about the remitter and source of funds especially when executing transactions with a bank located in a jurisdiction that does not comply or complies insufficiently with FATF Recommendations (high risk jurisdictions),

the possibility that PEPs are involved regarding the ownership of a bank.