Client Risk Assessment
A client risk assessment can be in electronic form, paper form or both as long as it is kept with the file so that it is easily accessible when reviewing the file. It must consider all of the relevant risk factors such as:
- why the client has chosen to instruct your firm;
- what type of entity it is i.e individual or company;
- if it is a company, whether its ownership or control structure is unusually opaque;
- whether it is based in the UK or abroad;
- whether client or a director/shareholder/member of the client is a Politically Exposed Person (PEP);
- If not an individual, what type of entity it is, i.e. a local authority, regulated entity etc;
- Does it operate a cash based business such as a shop or restaurant?
The assessment should produce a risk rating such as low, medium or high and the firm's AML policy should say what employees should do where the rating is medium or high. Any client that is identified as a PEP should automatically be high risk and the policy should say that authorisation to act should be sought from the COLP/MLRO.
Matter Risk Assessment
A matter risk assessment mut be carried out when taking on each new matter, even for an established client. It should consider:
- whether the instruction relates to the type of work normally carried out by the firm;
- whether it makes sense for the client to be carrying out the transaction (i.e. if a property is being purchased to live in is near where the client works, or will work? does it seem suitable for the client's needs?);
- does it make sense that the client can afford the purchase, if it is a purchase?
- does it appear to make commercial sense (think for example about sales for less market value, purchases for an inflated price, remortgages that result in a higher interest rate);
- If it is sale, is there a mortgage to repay and/or does the client live there (empty properties or tenanted properties are considered a higher impersonation fraud risk because the real owner is less likely to realise the property has been sold/is being marketed);
- If it is a purchase, is it being bought with cash?
- If it is a remortgage, will a substantial amount of equity be released?
- Does the transaction appear to be at arm's length?
- If no selling agent is involved, how did the seller and buyer come into contact?
- Has any of the purchase price already passed directly between the parties, or is the intention that it will?
- Are there any unusual allowances against the price/additional payments to be made?