Risk-Based Approach For Dealers in Precious Metals and Stones (DPMS)

Risk-Based approach for Dealers in Precious Metals and Stones (DPMS)

The importance of the Risk-based approach for Dealers in Precious Metals and Stones (DPMS) is understood from the nature of the business itself. Jewellers deal in precious metals, stones, jewellery, and by their nature, these items carry high value, and can be easily transported.

Unless a risk-based approach is applied in the jewelry business, it becomes too difficult for the DPMS to comply with the legal requirements of anti-money laundering law in the UAE.

How should DPMS assess the risks involved?

As a part of the risk-assessment process, you must identify specific areas of your business that are more likely to be used by criminals in order to conduct any terrorist financing or money laundering activities.

Therefore, you must assess the risks associated with all your business activities and services. Here are the four primary areas that you need to address while performing while determining your risk.

In order to do so, you must consider the nature and behavior of your clients, the products or services you deliver, and the ways or mediums in which you provide your offerings. However, if you identify any of the
situations that suspect unusual or illicit activities, you should instantly control these risks by implementing all the probable mitigation measures.

Read more about AML Compliance Requirements for jewellery business in UAE

What is a risk-based approach cycle?

Here are the crucial steps of the risk-based approach for the Dealers in Precious Metals and Stones:
In order to effectively assess your inherent risks, you can divide the process of risk assessment into two parts.
It is crucial for you to note that there is no documented methodology for assessing the risks of your business. Therefore, let us understand both of these processes in detail.

Business-based risk approach

In order to assess the risk associated with your business, you have to analyze your products, services, delivery channels, and the geographical location of the company. So let us learn about the same in brief.

1- Product and delivery channel

As a dealer in precious stones, metals, jewellery, and stones, you have to assess your products as well as delivery channels in order to ascertain any high risk associated with the same. This may include the following.
Product-And-Delivery-Channel
Here are a few things that you might want to consider while assessing your product and delivery channels.
Here are a few examples of potentially high-risk products if you are a DPMS.

Gold

Gold is undoubtedly a high-risk product because it is transformable, exchangeable, and potentially provides secrecy in the transactions. In addition to that, gold has a universal price standard, and it can be used as a currency.

Here are a few red flags associated with the trading of gold.

Diamonds

Diamonds also possess high trading risks because they are easily concealed, transportable, carry enormous financial value, facilitates secrecy and ease of transacting, and are highly challenging to trace.

Here are a few red flags associated with the trading of Diamonds.

Compliance. Trust. Transparancy

Customized and cost-effective AML compliance services to support your business always

Behavior of counter parties in some transaction

Here are a few behavioral traits that you must watch out for.

Various other indicators of High Risk

Here are a few other factors that indicate high risk.

2- Geography

Assess the risk associated with either your own business or the location in which it is located. For example, the movement of money or goods to and from the client company might include high-risk or severe financial crimes like money laundering or terrorist financing.
When you assess your geography, you have to consider whether the geographic locations in which you operate or your clients are based out possess high risks of money laundering activities or terrorist financing. Depending upon the operations of your business, this can range from your immediate surrounding to a province or a territory.
Here are a few examples of geographic elements that are required in your risk assessment.
Geography

Various other factors relevant to your company, if applicable

Assessing all the other factors related to your business but that does not fall under any of the previously mentioned headings is also crucial to mitigate or eliminate any potential risks. For instance, the size, structure, employees, and number of branches of your business are a few aspects that also need to be assessed for the availability of any risks.

Compliance. Trust. Transparancy

Customized and cost-effective AML compliance services to support your business always

As a dealer in precious stones, metals, or jewels, you enter a professional relationship when a customer conducts a transaction with you that requires you to determine their identity irrespective of whether the transactions are related to each other or not. If you have a professional relationship with your clients, you need to conduct a risk assessment based on the inherent characteristics of your customers. It can be done on the basis of the following factors.
In addition to that, it is quite a possibility that your business deals with clients out of a professional relationship. These types of interactions might be sporadic. As a result, there would not be sufficient information available for your business and the legitimacy of the clients. The risk assessment of these clients is more likely to focus on monitoring transactions than having a file under the name of your client. Monitoring such clients is nothing but an obligation to report any suspicious activities like money laundering or terrorist financing.

Here are a few examples of the characteristics of your clients that you might consider as high-risk.
Here are a few examples of transactions that you might consider that you might feel as high-risk.

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Related Blogs

Here are a few risks that you need to assess in order to carry out an adequate risk profiling for dealers in precious metals, stones, and jewels.

  • Product, service, and transaction-related risk
  • Supply channel-related risks
  • Geographical risk
  • Client-based risk

About the Author

Pathik Shah

CISA, FCA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a multi-disciplinary professional with more than 22 years of experience in compliance, risk management, accounting, system audits, IT consultancy, and digital marketing. He has extensive knowledge of Anti-Money Laundering rules and regulations, and he helps companies comply with legal requirements. Pathik also helps companies generate value from their IT investments.