Financial Crime World

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Risk-Based Approach (RBA) Guidance for the Banking Sector

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The Risk-Based Approach (RBA) guidance for the banking sector aims to mitigate Money Laundering (ML) and Terrorist Financing (TF) risks while promoting financial inclusion. Here are some key points related to the RBA guidance:

Financial Exclusion

Financial exclusion can affect both individuals and businesses, with various reasons such as a poor credit rating or a customer’s criminal background. However, these factors should not be used as the sole basis for simplified due diligence measures or exemptions.

  • A person’s financial history or background should not dictate their access to financial services.
  • Exemptions from due diligence measures should be based on proven low risks, not assumptions or stereotypes.

RBA and Financial Inclusion

A Risk-Based Approach may help foster financial inclusion, especially for low-income individuals who face difficulties in accessing the regulated financial system. Countries can establish specific cases for exemptions in the application of FATF Recommendations based on proven low risks.

  • Financial inclusion is essential for economic growth and development.
  • Low-risk customers should not be subject to overly complex or burdensome due diligence measures.

Risk-Based Supervision

The RBA aims to develop prevention or mitigation measures that are commensurate to the ML/TF risks identified. Supervisors should allocate supervisory resources to areas of higher ML/TF risk, on the basis that supervisors understand the ML/TF risk in their country.

  • Supervisors should assess the effectiveness of their current AML/CFT controls and procedures.
  • Resources should be allocated to areas with the highest ML/TF risks.

Guidance for Supervisors

The European Supervisory Authorities and the Basel Committee on Banking Supervision have published guidance on the application of the RBA by supervisors. This includes setting out what the RBA entails, self-assessment questions supervisors may ask themselves when reviewing their approach, and guidelines on implementing the RBA.

  • Supervisors should review their current AML/CFT controls and procedures.
  • They should assess the effectiveness of these measures and identify areas for improvement.

FATF Guidance

The FATF’s present Guidance provides a general framework for the application of the RBA, by supervisors and the banking sector. This guidance aims to promote consistency in the implementation of the RBA across different jurisdictions.

  • The FATF Guidance provides a general framework for the application of the RBA.
  • Supervisors and banks should use this guidance as a starting point for their own RBA implementation.