{"id":11458,"date":"2026-06-23T09:31:11","date_gmt":"2026-06-23T09:31:11","guid":{"rendered":"https:\/\/www.amlcc.com\/?p=11458"},"modified":"2026-06-23T09:31:12","modified_gmt":"2026-06-23T09:31:12","slug":"whats-meant-by-inherent-risk","status":"publish","type":"post","link":"https:\/\/www.amlcc.com\/ky\/whats-meant-by-inherent-risk\/","title":{"rendered":"What’s meant by inherent risk?"},"content":{"rendered":"\n

What’s meant by inherent risk?<\/h1>\n\n\n
\"Lisa<\/div>
Lisa Simms<\/span>

Director and Founder of AMLCC and AMLCC Consult<\/h3><\/div><\/div><\/div><\/div>\n\n\n
\"What's<\/figure><\/div><\/div>\n\n\n\n
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\u2018Inherent risk\u2019 is the level of money laundering, terrorist financing or proliferation financing risk that\u2019s presented by the nature of your business and its clients before you put any controls in place. It\u2019s measured before your AML policies, controls and procedures (PCPs) kick in. Any risk that\u2019s left after you have put in place risk mitigations is known as \u2018residual risk\u2019<\/p>\n\n\n\n

Inherent risk is identified by your business risk assessments (both your business-wide assessment and the assessments of relevant service lines) and your client risk assessments.<\/p>\n\n\n\n

Your business risk assessments build the overall picture of the risks your business is exposed to across its services, delivery channels, geographies and client base. Then when you assess a client or transaction, you need to assess what risk, if any, they add to your business-wide picture.\u00a0<\/p>\n\n\n\n

As your business and client changes, your inherent risk will change too. It\u2019s vital that you update your business risk assessments, AML PCPs and client risk assessments in line with these changes. <\/p>\n\n\n\n

Inherent risk in your business risk assessment<\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/strong><\/h2>\n\n\n\n

Your business-wide risk assessment is where you begin to investigate the inherent risk of your business. This means considering risks such as:<\/p>\n\n\n\n

Client risk: Who are your intended clients and do they include politically exposed persons, clients from higher-risk jurisdictions or clients with complex ownership structures?<\/p>\n\n\n\n

Geographic risk: What countries and territories are your business and your clients connected to?<\/p>\n\n\n\n

Product and service risk:\u00a0Are the services you offer more or less vulnerable to misuse for\u00a0money laundering<\/a>,\u00a0terrorist financing<\/a>\u00a0or proliferation financing<\/a>?<\/p>\n\n\n\n

Delivery channel risk: How are your services delivered? For example, do you deal with clients face to face or remotely?<\/p>\n\n\n\n

The picture of your inherent risk that emerges from this assessment then needs to inform your AML PCPs. If your business has a high inherent risk, you\u2019ll need different AML PCPs to a business with lower inherent risk.<\/p>\n\n\n\n

Inherent risk in your client risk assessments<\/strong><\/strong><\/strong><\/h2>\n\n\n\n

At a client level, the inherent risk of dealing with that client needs to be assessed before you can decide what level of due diligence<\/a> to apply. A client’s inherent risk is shaped by factors including:<\/p>\n\n\n\n