Central Bank of Montenegro’s Risk-Based Approach to AML/CFT
Risk-Based Approach (RBA) is an international supervision standard in the area of prevention of money laundering and terrorist financing. This approach implies the intensity and breadth of the scope of supervision based on the identification, assessment and understanding of the type and extent of risks to which the reporting entities are exposed. This approach is a method by which the intensity and scope of the AML/CFT supervision is based on the assessment of the type and scope of risks to which the reporting entities are exposed - that is, the greater the risk, the more significant and demanding the measures that must be taken in order to mitigate it, which implies more intensive and stricter supervision by the CBCG.
The main purpose of the RBA is to assess and monitor the risk of money laundering and terrorist financing, as well as to assess the threats that the determined level of risk may pose to a specific reporting entity, and ultimately to define the possible impact on the entire financial system.
Risk-based examinations help the CBCG to make more efficient use of its resources and to ensure that the examination focuses on reporting entities with the highest levels of risk, and on specific segments of reporting entities’ operations, where a higher level of risk has been determined.
Access to accurate, timely and impartial information on the risks of money laundering and terrorist financing is a prerequisite for an effective RBA.
Risk assessment by the CBCG serves as an instrument for the identification of reporting entities with the highest risk, in order to determine the deficiencies in the system of combating money laundering and terrorist financing, with a view to achieving the greatest possible efficiency.
The key stages in the risk assessment process are the following:
- Determining the significant activities undertaken by the reporting entities (previous reports, overview of the situation, compliance with action plans, etc.);
- Assessment of the inherent risks of money laundering and terrorist financing related to the reporting entity’s clients, products, services, transactions and distribution channels;
- Assessment of the design of appropriate risk management and internal control systems for each of these reporting entity’s activities;
- Assessment of the adequacy of the supervision of the board and senior management over its operations, including AML/CFT;
- Determining the total risk assessment for the reporting entity.
Risk-based approach focuses on prioritising and defining examination cycles, providing information about which reporting entity and which sectors are most important in terms of risk levels and prioritisation. This does not mean that other reporting entities will not be subject to examination, but that they will be defined as subject to regular examinations within the multi-year and annual examination plans.
The Directorate for Supervision of AML/CFT compliance is organised as two offices: Office for On-Site Supervision and Office for Off-Site Supervision. In order to strengthen technical capacities, the Directorate has developed a Module for calculating the risk of reporting entities, as well as a comprehensive questionnaire for reporting entities (which serves as the basis for the function of the Risk Calculation Module), for the purpose of which it performs risk assessment at least once a year, with the aim of determining priorities and adequate allocation of resources. The Directorate has additionally developed a segment of off-site examination, with frequent thematic examinations and examinations based on identified incidents in specific segments of the reporting entities’ operations.
Access to accurate, timely and impartial information on the risks of money laundering and terrorist financing is a prerequisite for an effective RBA.