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Rob Anderson

Cracking Down on Proliferation Financing: Key Considerations for Financial Institutions Planning their next round of Risk Assessments

Since 11 th August 2022, the UK’s MLRs have required regulated entities to consider proliferation financing (PF) via their business-wide risk assessments and downstream control frameworks. This additional requirement underscores the UK’s position on the importance of PF threats and risks and the need for vigilance and to align with FATF recommendations.

Good news or another headache to consider? The UK government recognises feedback from industry on the additional burden these requirements may cause and have therefore provided flexibility. You have two options:

1. Create a Separate Risk Assessment : This would allow for a more focused approach, isolating PF Threats and Risks from other Risk Areas. This may be suited to organisations who may have greater inherent exposure and more complex operations and may wish to develop a separate risk management framework for this Area.

OR

2. Incorporate PF into ML or TF Risk Assessments : Streamline your efforts by integrating PF considerations into your existing Money Laundering and Terrorist Financing risk assessments.

Here are three crucial considerations for firms who are preparing for their first PF risk assessment or seeking to mature their approach through next assessment rounds:

A. Inherent Risk and the role of Proliferation Financing Intelligence : A starting point to understand your exposure will be to consider the UK’s National Risk Assessment for Proliferation Financing in line with your organisations operations. Often we see organisations perform analysis of such reports, however this may or may not be a direct input for the BWRA. Firms are expected to consider other sources of intelligence too; not only to align with regulatory expectations but to ensure adequate understanding of the inherent risk environment.

B. Holistic Financial Crime Risk Assessment : The FATFs approach to, and expectations for, Proliferation Financing centre around targeted sanctions regimes in place. As such sanctions controls undoubtedly have a role to play in its mitigation. It is possible you may already perform a sanctions risk assessment as the FCA certainly think you should. But how can you efficiently assess controls as well as understand their broad impact on different threats? Will it be acceptable to simply roll out your sanctions risk assessment given the regulator only references the ability to include PF Risk as part of ML/TF assessments? As our recent paper highlights, proliferators, which can include state actors and non-state actors (such as terrorist groups and organised crime groups) seek to evade sanctions controls and so focusing narrowly on sanctions risks and controls alone, may not ensure you have full understanding of exposure and your effective mitigation.

C. Control design : Organisations will need to consider the design of their existing controls that may already manage risks, which could be common across multiple risk areas and their associated threats (e.g. use of shell and front companies) already. As part of your BWRA how will you identify the controls, assess their existing design and plan for any enhancements required.

In a rapidly evolving financial landscape, adaptability and informed decisions are paramount. Keep your firm secure, compliant, and agile in the face of changing regulations. Acuminor’s solution is highly configurable and designed to enable organisations assess proliferation financing in a way that is suitable to their nature, scale, exposure and approach.

We also have some exciting news in relation to proliferation financing intelligence for our existing customers which will be announced shortly and it will certainly help them through this next risk assessment round. If you would like to know how the proliferation financing feature in Risk Assessment Pro can improve your daily work, please read more and sign-up to get more information.

Read our Financial Crime Brief "Proliferation financing and the private sector: Keeping pace with regulatory expectations".