Have you ever faced a challenging decision and thought, “What would I do here?” Risk assessment in anti-money laundering (AML) is a lot like that. It’s about understanding the landscape, weighing options, and making smart choices to keep your organization secure and thriving. But when the stakes are high, taking the right approach to risk assessment becomes essential.
Imagine this as shown in the image above: you’re standing at the edge of a river. On the other side lies incredible opportunity—growth, success, the chance to make an impact. But the river is filled with crocodiles. In this context, let’s assume these crocodiles represent the regulators, law enforcement, FIU, Government bodies, etc. What do you do?
When I bring this scenario up in training, people usually respond in one of three ways:
“I’d take a leap of faith and jump across.”
“I’d wait until the crocodiles are gone, then cross.”
“I’d look for a different, safer route.”
Each response gives insight into how we approach risk. But let’s break it down from an AML perspective and see what each choice really means.
1.Taking a Leap of Faith
Leaping into high-risk situations—like launching a new product or partnering with a high-profile client—without proper consideration might seem bold. But it’s also dangerous. Without a strong risk assessment, you’re likely to face regulatory penalties, reputational damage, or financial loss. In AML, this approach can expose your organization to unnecessary risk, all for the sake of speed.
2. Waiting It Out
The “wait and see” approach might feel safer. But in AML, waiting for risks to “disappear” is just wishful thinking. Ignoring potential threats, like regulatory scrutiny or changes in high-risk customer behavior, doesn’t make them go away. The crocodiles are still there, and sooner or later, they’ll catch up. Delaying action on risk assessment only increases your exposure.
3. Avoiding Risk Entirely
Maybe you’d rather avoid the risk altogether. Avoidance is safe, sure, but it’s also limiting. In AML, playing it too safe can hold you back from opportunities, growth, and impactful connections. Avoiding high-risk clients, products, or regions might feel like the best approach, but it can also mean missed potential.
So, What’s the Best Approach? It’s Time to Build a Bridge.
What if, instead of leaping, waiting, or avoiding, you took the time to build a bridge? In AML, building a bridge means creating a strong, structured risk-based approach that enables you to cross safely to the other side—toward opportunities—while managing risks effectively.
How do you start building that bridge? First, it’s essential to understand in AML risk assessment, there are three core factors: Products and Services, Customers, and Geographic Location. These factors guide you in identifying and understanding different types of risk, allowing for a proactive approach to managing them effectively.
Here’s a breakdown of the types of risk you’ll encounter:
Inherent Risk: This is the risk that naturally comes with your business activities—such as the types of products you offer, the characteristics of your customers, and the regions in which you operate. For example, certain financial products or customer profiles carry higher risks simply because of their nature.
Residual Risk: This is the risk that remains even after you’ve implemented controls. In other words, despite your efforts to mitigate inherent risks, some risk will always linger.
Hidden Risks: These are risks that don’t appear immediately but may surface over time. They’re the unexpected challenges that can emerge as new information or conditions arise, posing a potential threat if overlooked.
Building a bridge takes effort, but it’s worth it. With a solid risk-based approach, you’re not just reacting to risks—you’re staying one step ahead. Risk assessment in AML isn’t about playing it safe or avoiding risk entirely; it’s about understanding what’s out there, preparing for it, and moving forward strategically.
Asking the Right Questions
A key part of building this bridge is being brave enough to ask tough questions. Questions like:
“How could this product be compromised?”
“What potential risks could this partner bring to our business?”
“What are the inherent risks associated with this location?”
These questions push you to consider the “what-ifs” and prepare for scenarios that might not be obvious. It’s about understanding that every product, service, customer, or region comes with its own unique set of challenges—and opportunities.
When you break down risk assessment this way, it becomes clear that a risk-based approach isn’t just about complying with regulations. It’s about setting up a framework that protects your organization while allowing it to thrive. Effective AML practices start with the courage to dig deep, understand risks, and design controls that keep your organization moving forward, safely.
So, the next time you find yourself wondering, Why does risk assessment matter? I hope you’ll think back to this image. And if you’re tempted to say, “We don’t have time for a full risk assessment,” ask yourself instead: Can we really afford not to? Don’t leave your journey up to chance. Start building your bridge now, so you’re prepared to reach those opportunities waiting on the other side—safely and confidently.
Warm regards, and until next time!
Rahimah Kashim
Practicing Leader at Oktriz