Risk Assessment Policy Development

All art market participants are required to have a clear, written risk assessment policy in place.

The staff must be familiar with your company’s risk assessment policy and the designated executive — often called the “compliance officer” — is responsible for ensuring that the risk assessment policy is followed for all covered fine art transactions. ASV will help you design a risk assessment policy customized for your business.

Your written risk assessment policy should include:

  1. Analysis of risk based on a variety of criteria: the nature and size of your company, the number of employees, annual sales, proportion of cash-based sales, location of transactions, sales channels, customer base, volume and value of products, transaction type and risk-level, industry areas, and more.
  2. Detailed description of due diligence procedures that you have in place to assess the risk associated with any given transaction. This is, at its core, Know-Your-Customer (KYC) or Customer Due Diligence (CDD). By making sure you know with whom you are doing business, you minimize the risk that the funds used in the transaction were illegally obtained. Standard due diligence procedures include obtaining government ID from customers, verifying the authenticity and accuracy of the identification presented, and conducting a background check on the individual or entity providing funds, including all substantial beneficial owners.
  3. Comprehensive description of triggers that require enhanced due diligence in high-risk transactions, based on red flags discovered during the standard due diligence process. For example, is the buyer in a risky industry? Are funds coming from a geographic location historically associated with money laundering? Is the transaction unusually or unnecessarily complex (eg. multiple layers of companies)?
  4. Criteria to determine whether to proceed with the transaction, to conduct enhanced due diligence, or to cancel the sale.
  5. Record-keeping protocols. The compliance officer is required to keep detailed records of all covered transactions, including a statement of the basis for their decision to proceed. Fine art businesses are subject to audit by regulatory authorities—the HMRC in the UK; FinCEN in the US—which may demand to inspect these records from periodically or on the occasion when a work sold is found to have been purchased by a sanctioned buyer. Failure to maintain proper records, in and of itself, is a violation of applicable regulations.

ASV’s Risk Assessment Policy team is here to help you develop a custom policy that protects your business.