AML EWRA - How to conduct Anti-Money Laundering overall risk assessment?

➪ How to carry out an effective AML risk assessment?

Conducting an AML risk assessment is not a single task. It implies defining an AML risk rating methodology and the creation of an AML risk assessment model in line with your business. Financial institutions manage their AML risk exposure by defining sound processes and risk-based vigilance efforts.

The multiple benefits of an effective AML assessment system can only result if a proper understanding of the AML EWRA regulation and the experience of your company and business industry work together.

🔎 What is EWRA Compliance and the Risk-Based Approach (RBA) ?

An appropriate risk-based approach begins with the acquisition of an in-depth and up-to-date awareness of the institution's risk exposure and an understanding of those risks.

A Risk-based approach (RBA) is an essential part of Risk Management and the AML/CFT framework. RBA was highlighted in the 2012 FATF Recommendations:

“...countries should apply a risk-based approach (RBA) to ensure that measures to prevent or mitigate money laundering and terrorist financing are commensurate with the risks identified.”

It was also a major topic implemented in the fourth European AML Directive.

📘 AML EWRA Enterprise-Wide Risk Assessment Methodology

📄 Documentation and updating of an EWRA

In general, the AML Overall Risk Assessment should be documented, updated and kept at the disposal of the supervisory authorities (the National Bank for Belgium). It will be updated every time that an event occurs and can have a significant impact on the ML risk profile of the entity.

It is not a process that takes place once per year, but an on-going process that occurs every time a major situation arises. The entity should have, at any time, a clear understanding of how its ML risks associated with the business relationship are evolving.

In addition to the EWRA report, a document describing the process for the completion of the assessment is expected. In this record, the applicable legal framework and sectorial guidance are specified. Moreover, it should mention the methodology used, how this has been integrated into the assessment, a description of the procedures for monitoring and a timely update of the risk assessment process, together with a reference to the extent to which the Anti-Money Laundering Compliance Officer (AMLCO), the compliance officer, senior management, and any other parties have been involved in all the phases of the process.

Firms must be able to demonstrate to their regulator, on the basis of those documents, that their approach meet the obligations of the AML law of 20 July 2020 (Belgium).

⚠️What are the risk factors to consider?

In order to conduct their EWRA, firms will have to consider specific risk factors and the principle of proportionality.



The risk factors will be used in the analysis and in the final assessment as pillars that the firm will use to build on its evaluation. The risk factors cover specific domains that can include many sub-risks that have to be taken into consideration. For example, the risk factor of customers can include risks like working with the wrong counterparty, not having enough additional measures to take a founded decision, etc.

The entities that conduct an EWRA should weight the risk factors based on their relevance in the business relationship and transactions. The entities usually put different “scores” for various factors. According to EBA’s Risk Factors Guidelines (JC 2017 37) when weighing risk factors, the entities should consider various matters like the fact that profit considerations do not influence the risk rating and that the firm is ready to override any automatically generated risk scores where necessary, providing, of course, proper documentation for this decision.

⭐ The rationale behind the EWRA obligation

The competent national authorities can assess the adequacy of the firms' AML/CFT internal organisation framework and policies and procedures.
It allows firms to identify the ML / TF risks to which a business is exposed and to identify situations that generate higher ML / FT risks and the focus on which the efforts should placed on.

Furthermore, it gives firms a sound perspective on how to best estimate their customer AML risk scoring while also assessing single cases.

⚖️ The legal framework of an AML EWRA

• The 5th AML Directive (2018/843);
• The Belgian ML/FT Law of 20 July 2020, which transposes the 5th AML Directive in the Belgian legal framework;
• The NBB Regulation of 21 November 2017;
• Circular 02/2018 / Overall assessment of money laundering and terrorist financing risks.

There are also useful documents published from the Authority of Services and Financial Markets (FSMA):

• Practical Guide for the Overall Risk Assessment for Money Laundering and Terrorism of financing from the insurance intermediaries (“Guide pratique “FSMA_2018_07 du 22/05/2018”), available in French or Dutch.
• Periodic questionnaire related to the prevention of Money Laundering and the Financing of Terrorism (“FSMA_2020_11 du 10/09/2020") available in French only.

It is a chance for companies to gain a clearer picture of their business and to anticipate the ML/TF risks before they become unbearable burdens for the entity.