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Finanstilsynet releases study of stockbroker AML risk assessments

Examination of stockbroking companies’ risk assessment in the area of ​​money laundering

In the fourth quarter of 2020, the Danish Financial Supervisory Authority conducted a cross-cutting study of a number of stockbroking companies’ risk assessments in the money laundering area.

Summary

The study included the risk assessments of ten stockbroking companies. It was intended to examine whether the stockbroking companies live up to section 7 (1). 1 of the Money Laundering Act, which requires the individual company to prepare a risk assessment, which identifies and assesses the risk that the company may be used for money laundering and terrorist financing. 

The study showed that the quality and scope of the risk assessments vary. Several stockbroking companies have not prepared a sufficient risk assessment that reflects the risks to which the companies are exposed. Conversely, there are also companies that have a good risk assessment.

The Danish Financial Supervisory Authority generally assesses that stockbroking companies in Denmark as a whole have a relatively low risk of being used for money laundering or terrorist financing. However, this does not mean that companies do not have to pay attention and make sure to hedge risks. 

The Danish FSA’s investigation has resulted in seven stockbroking companies being ordered to revise their risk assessment in the area of ​​money laundering. One company was made aware of the deficiencies found in the risk assessment, as there was no reason to issue an injunction. 

Why is a risk assessment important?

The risk assessment must create an overview of and understanding of the company’s inherent risks that the company can be used for money laundering or terrorist financing. The inherent risks follow from the company’s business model and it depends, among other things, of the company’s products and customer types and the markets in which the company operates. The risk assessment forms the basis for the management of the individual company to design and manage the company must be designed and managed to limit the risks. 

What is the consequence of an inadequate risk assessment?

The risk assessment thus forms a concrete basis for which policies the company must draw up in the area of ​​money laundering. The policies must include an identification, assessment and delimitation of the company’s risk factors as a conclusion to the company’s risk assessment. Among other things, they must contain overall decisions about how the company should be organized, how business procedures should be designed and what controls should be in the company. The consequence of an inadequate risk assessment may be that a company does not get the necessary or correct decisions on how to set it up to avoid being used for money laundering or terrorist financing. 

What has the Danish Financial Supervisory Authority focused on?

In reviewing the stockbroking companies’ risk assessments, the Danish FSA has focused on the following areas:

  • Whether the company has sufficiently identified the risk factors that must as a minimum be included in a risk assessment pursuant to section 7, subsection 1 of the Money Laundering Act,
  • whether the company has adequately identified and assessed the inherent risk of being used for money laundering and terrorist financing,
  • whether the company has adequately covered its risk separately for money laundering and terrorist financing, and 
  • whether the company has sufficiently substantiated the risk assessment with relevant information and taken as its starting point the supranational and national risk assessment, as well as other forms of documentation in the area. 

What did the Danish FSA’s investigation show?

The Danish Financial Supervisory Authority has found that the stockbroking companies in their risk assessments have to a certain extent identified the risk factors that must as a minimum be included in a risk assessment pursuant to section 7 (1). 1 of the Money Laundering Act. 

At the same time, the Danish FSA has found that companies in some areas do not comply with the legislation. These are in particular the following:

  • Most companies have not adequately hedged their risks separately for money laundering and terrorist financing, respectively. In particular, the Danish FSA finds that the risk of being used to finance terrorism is not sufficiently covered. This increases in particular the risk that companies may be used for terrorist financing.
  • A number of companies have not sufficiently substantiated the risk assessment with relevant information and they have not taken as their starting point the supranational and national risk assessment or other documentation in the area. There is a risk that there is significant information that the companies will not include in the risk assessment.

What will the Danish Financial Supervisory Authority do?

This time, the Danish Financial Supervisory Authority has exclusively examined the companies’ risk assessments in the area of ​​money laundering. It has thus not been included in the study whether policies etc. meets the requirements of the legislation. The closer examination of the policies in the area of ​​money laundering and other matters will take place in connection with the ongoing supervision of the companies. 

As a result of the results of the investigation, the Danish Financial Supervisory Authority will continue to focus on whether the companies’ risk assessments in the money laundering area meet the requirements. 

The Danish FSA will continue to focus on guiding and informing companies about the importance of having a good risk assessment. 

If you want to know more

Legislation in the area of money laundering

Laws, executive orders, directives, etc. related to money laundering The

website also contains links to a number of other useful information that companies can use in their work.

The Danish FSA’s guidelines for the Money Laundering Act The

Danish FSA has recently revised the guidelines for the Money Laundering Act. The purpose of the guide is to support the companies in their work to live up to the legislation and thus avoid being used for money laundering and terrorist financing. Read the instructions

Link:

Finanstilsynet notice

Categories: Anti-Money Laundering Finanstilsynet Updates Risk Assessment

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