What do we do?
Arctic Intelligence do not generate our own data, instead, we aggregate trusted third-party data from over 25 credible sources including; Transparency International; the World Bank; the World Economic Forum; the Financial Action Task Force (FATF); the United Nations and the Organisation for Economic Co-operation and Development (OECD), among many others.
Since all the third-party sources use different metrics to assess the country risks, we employ normalization and aggregation techniques to generate our own overall risk score and rating based on the component sources, applying expert judgment to derive the final overall country risk score.
The sources that are used have been selected as the best indicators of a countries overall performance against key social, political, economic and financial crime risk factors including:
- Civil rights
- Political environment and the extent of corruption and transparency
- Judicial strengths in upholding the laws of the land
- Bank secrecy laws and other financial regulations
- International co-operation and participation in global conventions, for example, OECD, FATF or United Nations sanctions
- Compliance and regulatory oversight of AML/CTF laws
How do we do it?
Firstly, Arctic Intelligence compiled a list of 260 countries based on the International Organisation for Standardisation (ISO) – Country Codes, which has been established since 1947.
Secondly, we referenced over 25 credible third-party data sources, grouped across five risk factor dimensions and marked the ‘actual’ score against each country.
Thirdly, we applied expert judgment to normalize the actual score for each data source; the methodology for this is available to our users.
Finally, we reviewed the composite risk scores across each of the 25+ risk factors and apply an expert judgment to derive the overall risk score for a country, which is based on a sliding scale from 1 (Extremely Low Risk) to 10 (Extremely High Risk).
As a result of applying a qualitative expert assessment the individual risk factors are not weighted equally or statistically, with greater emphasis placed on certain risk factor dimensions than others. Applying purely mathematical calculations to derive an overall risk factor, was considered initially but discounted due to the wide range of different variables and the potential for over or under-estimating key metrics. Country risk assessment is more of an art than an exact science!
The methodology that we have used relies upon expert qualitative judgment to consider all of the inputs and to derive an overall risk factor based on this rather than mathematical computations.
The overall results and scores of the country risk assessment provide a simplified methodology for comparison of countries based on a wide variety of independent sources using inconsistent metrics.
As a result, the overall country risk assessment tool should not be viewed as a factual or purely quantitative measurement of country risk but can be used to inform the user of the assessments made by leading international bodies against different risk dimensions. Users have the ability to over-ride and modify the country risk settings based on their own interpretation, if their view differs to that of our expert panel.
Country risk is not a static variable due to a diverse set of changes that can occur including changes to; government or political regimes; wars and civil conflicts; government regulations; co-operation with international treaties; international sanctions; economic stability and many other factors. The country risk assessment tool is updated bi-annually, meaning that one or more risk factors could change in between the periods when the tool is updated and the current situation may reflect differences in the country risk assessment model at any given point in time.
Similarly, the third-party data sources that are used in the country risk assessment tool is conducted by the third parties at different intervals and therefore the current results may not exactly reflect the situation. An example of this would be the Financial Action Task Force (FATF) or regional FATF bodies that conduct mutual evaluations of more than 140 member countries, typically on a four-year review cycle, meaning that in the interim period the country may have implemented and improved the controls which may effectively reduce the risk than the one reported until such time as the next mutual evaluation is conducted.
Finally, not every country is included in every one of the third-party data sources. In the absence of data a professional expert assessment has been made to normalise the score for this particular factor based on an assessment of other factors.