Improving auditor effectiveness in assessing KYC/AML practices: Case study in a Luxembourgish context

Purpose – The purpose of this paper is to report on the suitability of an ISO standard to create an internal control assessment model, which effectively acts as a control system template and mental model to evaluate compliance with the Know Your Customer (KYC) and anti-money laundering (AML) requirements in the Luxembourg retail and private banking sector. Design/methodology/approach – This paper used a qualitative approach with various focus groups and case studies, to elaborate and validate the developed model through methodological triangulation. Findings – The proposed assessment model has a matrix structure that facilitates the incorporation of checklists and narratives to ensure effective testing of controls and its structure allows targeting specific areas of risk in the identified KYC/AML processes. Research limitations/implications – The development of the model tended to be time consuming and could explain why matrix formats are used less often and the traditional limitations of a qualitative research apply. Practical implications – The model can be used to combine various reporting formats on internal control, hence the audit effectiveness can be increased and information asymmetries can be reduced. Originality/value – The proposed assessment model offers an innovative approach because it combines a process view of the business with an internal control view. Research in internal control assessment models has been very limited in the past years.