A second order cybernetics approach to the deconstruction of risk in the domain of anti money laundering

Bearpark, Noémi També

Abstract

This research examines the application of the risk-based approach (RBA) in the context of anti-money laundering (AML) and explores how it drives risk interpretation and deconstruction within relevant AML stakeholders.
Review of existing literature indicates that the majority of studies deliver descriptive and typological assessments of existing AML frameworks. The belief that the RBA supports institutions in their risk management is unquestioned throughout the industry. Yet the interpretation and application of the RBA impacts the way risk is perceived, represented and handled, resulting in a misalignment between stakeholders. In addition, there is no assessment of whether the RBA generates additional ML risk.
To address the above, a cross-case study was conducted within two FIUs with data collection carried out primarily through semistructured interviews of key AML experts within both organisations and through reviewing relevant documentation and data. In addition, complementary semistructured interviews were conducted with risk practitioners within the banking and regulatory industries.
This interpretive research is grounded in Luhmann’s systems theoretical treatise on risk (Luhmann, 1993) and can be positioned in the tradition of second-order cybernetics. The theory also informs data collection. The research identifies that AML practitioners interpret ML risk as an entity that can be contained, largely unaware that ML risk is interdependent on risk, essentially self-referential and autopoietic. Furthermore, this research shows that the RBA fails to capture the complex phenomena of feedback and irritation across systems that result in de-risking, which, in turn, leads to re-risking. Such phenomena are inevitable and should be facilitated to enable systems to minimise their own complexity. On this basis, this research proposes a new ML risk communication framework that is informed by Luhmann’s risk model and enhanced by the concepts of risk bearer and translation code introduced in this research.

Citation

Bearpark, N. T. (2020). A second order cybernetics approach to the deconstruction of risk in the domain of anti money laundering. (Thesis). University of Hull. Retrieved from https://hull-repository.worktribe.com/output/4224627

• Thesis Type: Thesis
• Deposit Date: Jan 12, 2023
• Publicly Available Date: Feb 24, 2023
• Keywords: Business
• Public URL: https://hull-repository.worktribe.com/output/4224627
• Additional Information: Business School, The University of Hull
• Award Date: Sep 1, 2020