What are the key components of an effective methodology for conducting business-wide risk assessments for money laundering?

Matt Russell
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Matt Russell: Senior Executive, Avyse Partners, UK

Journal of Financial Compliance, 2025, vol. 9, issue 2, 168-183

Abstract: This paper explores the core components of an effective methodology for conducting business-wide risk assessments (BWRAs) for money laundering (ML), terrorist financing (TF) and proliferation financing (PF), a key regulatory requirement central to the UK’s Money Laundering Regulations (MLR) 2017. Despite the long-standing emphasis on the risk-based approach (RBA) in both UK and international standards, recent enforcement actions by the Financial Conduct Authority (FCA) reveal persistent weaknesses in regulated firms’ implementation of this obligation. Through a diagnostic framework grounded in ISO 31000, the international standard for risk management, this paper analyses FCA enforcement notices issued over the past decade to identify thematic failings in risk assessment, risk treatment and governance. The paper then evaluates the extent to which current industry guidance, namely the Joint Money Laundering Steering Group (JMLSG) Guidance Notes, adequately addresses these shortcomings. The findings suggest that although the guidance aligns with regulatory expectations, it disproportionately emphasises customer due diligence (CDD) at the expense of broader risk governance and fails to distinguish clearly between key risk assessment elements: identification, analysis and evaluation. The paper argues for a more holistic, process-oriented approach to BWRAs, with enhanced guidance on risk mapping, iterative control calibration and the integration of customer and transaction-level assessments into firm-wide risk management. Readers will gain practical insights into how to strengthen the effectiveness of their BWRAs by aligning them more closely with established risk management standards and by interpreting enforcement findings through a process-focused lens, thereby enhancing regulatory compliance and financial crime risk mitigation. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.

Keywords: business-wide risk assessment; BWRA; risk-based approach; RBA; Financial Conduct Authority; FCA; ISO 31000; anti-money laundering; AML; financial crime compliance (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:aza:jfc000:y:2025:v:9:i:2:p:168-183

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