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Know Your “CDEs” to Strengthen Financial Crime Risk Management

  • Writer: FinScan
    FinScan
  • Jun 20
  • 3 min read

Managing financial crime risks is a complex challenge that requires organizations to focus on three critical pillars: complexity, data, and effectiveness (CDE). These three elements are fundamental to building a robust risk assessment framework and effective compliance program. By addressing these key factors, businesses can ensure the effectiveness of their efforts to prevent and detect financial crimes.  


Complexity: the first pillar of financial crime risk 


Understanding today’s evolving financial crime landscape requires acknowledging the intricate web of risks that organizations face. Risk assessment is no longer just about understanding your customers. It must also include evaluating:

 

  • Their relationships and counterparties 

  • The source and movement of funds 

  • Sanctioned parties potentially involved 

  • Broader geopolitical and economic risks 

 

In this complex environment, achieving compliance alone is insufficient. Businesses must actively identify, assess, and mitigate financial crime risks to protect their reputation and operations. This includes understanding potential underlying crimes, known as predicate offenses or specified unlawful activities (SUAs) depending on the jurisdiction. 

 

Each element of complexity introduces new risks that must be identified, measured, and managed as part of a comprehensive risk assessment framework.  


Data: the foundation of informed risk assessment 


Data is the second pillar and a crucial component of any effective risk assessment strategy and compliance program. Reliable, high-quality data provides insights necessary to understand, measure, and manage risks effectively. To ensure your data supports these efforts, it must demonstrate three key attributes: 


  1. Fitness for purpose: Data must be relevant to the risks being assessed. 

  2. Alignment with risk questions: The data used must align with the specific risk assessment and mitigation objectives. 

  3. Adaptability: Data requirements and attributes will evolve as risks change over time. 


A strong risk assessment and compliance program cannot exist without a foundation of quality data. Assessing data quality should be a core part of your risk assessment process. Implementing a data quality framework helps maintain data integrity and ensures continued effectiveness. This framework should support six key data quality attributes: 


  • Accuracy: Data must reflect true values without errors. 

  • Completeness: All necessary data fields should be filled. 

  • Timeliness: Data must be updated regularly to reflect current conditions. 

  • Consistency: Data should align across various systems and departments. 

  • Uniqueness: Each data point should be distinct and not duplicated. 

  • Integrity: Data must be protected against unauthorized alterations. 


By implementing a strong data quality framework supported by clear standards, policies, and procedures, businesses can enhance the accuracy and reliability of their risk assessments.  


Effectiveness: moving beyond compliance 


Historically, financial crime risk assessments were often designed to identify risks and ensure regulatory compliance. This approach encouraged a “check-the-box” mentality that overlooked prevention and detection strategies. 


Today, organizations must broaden their focus to ensure their compliance efforts are effective in mitigating actual threats. To achieve this, businesses must:

 

  • Evaluate risks at both the customer level and business-wide level. 

  • Identify relevant predicate offenses or SUAs that may pose a risk to the organization or its clients. 

  • Implement strong risk mitigation efforts or controls such as: 

  • Know Your Customer (KYC) processes 

  • Ongoing due diligence and adverse media screening 

  • Data typology analysis to uncover hidden risks 


Effectiveness is about identifying potential threats before they materialize, ensuring your organization is not just compliant but also actively safeguarding itself from financial crimes.  


Building a stronger risk assessment framework 


By adopting the “CDE” approach—focusing on Complexity, Data, and Effectiveness—organizations can strengthen their financial crime risk assessment frameworks and compliance programs. This comprehensive strategy enables businesses to improve detection and prevention capabilities, enhance data quality and insights, and ensure compliance programs are effective—not just compliant. 


In today’s fast-changing risk environment, embracing the CDEs is essential for protecting your organization, its customers, and your broader financial ecosystem. 


On-demand Webinar The CDE's of Modern Financial Crime Prevention: Complexity, Data and Effectiveness


Need advice on how to improve your AML program? 

Our advisory services can help you to identify potential weaknesses and ensure full compliance with regulatory requirements. Learn more and contact us to get started. 


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