RBI asks REs to conduct internal risk assessments for terror financing

There is always a likely exposure to elevated ML, TF, and PF risks in an ever-changing business environment and the increasing level of complexities in banking and financial products

The Reserve Bank of India on Thursday asked regulated entities (REs) to carry out internal risk assessment (IRA) of their business models and business relationship with customers to detect threats from money laundering (ML) and terror financing (TF) and proliferation financing.

There is always a likely exposure to the elevated money laundering ML, TF and PF risks in an ever changing business environment and the increasing level of complexities in the banking and financial products. The risks are further multiplied as use of emergent technologies and newer methods of payments enter the scene, RBI said in a guidance note to REs.

The enterprise level risk assessment forms the bedrock of the approach as it would help the REs to understand how and to what extent they are vulnerable and decide the allocation of attention and resources to mitigate that risk.

The REs should have appropriate level of control/mitigating measures, to ensure that the elevated risks do not result in the financial institution being misused for ML/TF. These measures also are necessary to ensure that risks do not lead to loss of reputation and/or other financial losses for having allowed the suspicious transactions routed through the banking channels/ financial systems.

Referring to dual level IRA, RBI said REs could be exposed to ML/TF/PF risk due to the specific business model, nature and complexity of their business. IRA should be commensurate with the nature and size of REs’, it added.

REs are also exposed to ML\TF risks as a result of entering into a business relationship with their customers or carrying out an occasional transaction for walk-in customers, RBI said.