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Financial institutions in Malta are entering the final stage of the annual regulatory cycle.
In the coming months, subject persons must submit their updated Risk Evaluation Questionnaire, confirm their Subject Person Profile and present a complete Business Risk Assessment. The FIAU establishes the requirement for an annual BRA and defines it as the foundation of a subject person's risk-based approach. The document is expected to identify Money Laundering and Terrorism Financing threats, assess inherent and residual risks, and demonstrate that the institution's controls are proportionate to its risk exposure. The preparation of a structured and evidence-based assessment safeguards against regulatory, operational and reputational risks.
A Business Risk Assessment must show a clear understanding of how Money Laundering and Terrorism Financing risks manifest within the institution's operations. This requires a structured methodology that evaluates its customers, geographical exposure, products and services, delivery channels, and sector-specific elements relevant to the institution's activities. Institutions with cross-border operations or volume-driven models must establish risk scoring frameworks that reflect the realities of their business.
The assessment of inherent risk should rely on quantitative analysis covering likelihood and impact. Likelihood focuses on a probabilistic approach to threats that can exploit a vulnerability within the business. Impact reflects the financial, regulatory, or operational consequences if the risk materialises. A clear scoring grid improves transparency, feeds into the risk matrix mapping out the inherent risks and provides senior management with an objective perspective of risk concentration.
Internal controls must then be measured against these findings. Institutions need to assess the strength of their governance arrangements, automated monitoring tools, customer due diligence processes, and escalation procedures. Control effectiveness should be rated using a defined scale, since unclear control ratings lead to weak and unreliable conclusions. The outcome of this analysis produces a residual risk rating that determines where improvements are required.
Regulators expect the BRA to be supported by evidence. This includes references to the National Risk Assessment, FIAU typology reports, supervisory findings, and sector publications. Data used in the assessment, such as customer distribution, jurisdictional exposure, or product risk indicators, must be accurate and verifiable. Unsupported statements weaken the assessment and raise concerns about the reliability of the institution's risk management framework.
A complete BRA concludes with a structured summary. This summary should outline the highest residual risks, explain the rationale behind each rating, and list the corrective measures required to strengthen the risk framework. Management decisions on resource allocation, system improvements, or policy changes must be clearly linked to these conclusions. Visual tools such as risk matrices support this process and increase the usability of the document.
Although annual updates are mandatory, institutions are required to review their BRA whenever significant changes occur, such as the launch of new products, entry into new markets, or material shifts in customer behaviour. The document must include its completion date, version number, and next scheduled review to demonstrate compliance with supervisory expectations.
With deadlines approaching, institutions must ensure their BRA meets the required standards and reflects a complete understanding of their risk profile. A well-constructed assessment reduces regulatory exposure, improves the alignment of internal controls, and strengthens the overall AML and CFT framework.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
