Financial Crime World

Here is the converted article in markdown format:

Risk-Based Approach Guidance for the Banking Sector

In an effort to mitigate money laundering and terrorist financing (ML/TF) risks, banks and countries are being urged to adopt a risk-based approach (RBA). According to the Financial Action Task Force (FATF), this approach requires that financial institutions and competent authorities assess ML/TF risks and take measures to manage and mitigate them.

Tailoring AML/CTF Measures

The FATF recommends that banks, countries, and competent authorities decide on the most appropriate and effective way to mitigate identified ML/TF risks. This means taking enhanced measures in situations where the risk is higher, while applying exemptions or simplified measures in low-risk situations.

  • For instance, countries seeking to exempt certain financial institutions or activities from specific FATF Recommendations must demonstrate a proven low risk of ML/TF.
  • Similarly, banks may apply reduced customer due diligence measures for customers with lower ML/TF risks.

Supervisory Resource Allocation

The RBA also applies to supervision, where supervisory authorities should allocate their resources to areas of higher ML/TF risk. Supervisors must have on-site and off-site access to all relevant information to determine a bank’s risk profile.

Guidance for Supervisors

The FATF has published guidelines for supervisors on the implementation of the RBA, which includes:

  • Allocating supervisory resources to high-risk areas
  • Discharging functions in a way that is conducive to the application of an RBA by banks

Additionally, the European Supervisory Authorities have published a report on anti-money laundering and counter-terrorist financing risk-based supervision, while the Basel Committee on Banking Supervision has issued guidelines on sound management of risks related to money laundering and financing of terrorism.

Financial Inclusion

The RBA can also contribute to greater transparency and traceability of financial flows by allowing financial institutions to apply reduced customer due diligence measures for customers with lower ML/TF risks, thereby promoting financial inclusion policies.