KYC360º FAQ

What is the Risk Based Approach?

The Wolfsberg Statement - Guidance on a Risk Based Approach for Managing Money Laundering Risks  defines the Risk Based Approach as

“important to the effectiveness and efficiency of the fight against money laundering. It promotes the prioritisation of effort and activity by reference to the likelihood of money laundering and reflects experiences and proportionality through the tailoring of effort to risk.”

In other words firms can focus effort where it is most needed by effectively assessing and monitoring the risks posed by each of their business relationships. Higher risk entities require more intensive monitoring. This allows firms to allocate more effort where it is due rather than a one-size fits all philosophy of traditional rules based supervision.

In the UK the RBA is enshrined in law in the UK Money Laundering Regulations 2007

“.—(1) Subject to regulations 9, 10, 12, 13, 14, 16(4) and 17, a relevant person must apply customer due diligence measures when he—

(a) establishes a business relationship;

(b) carries out an occasional transaction;

(c) suspects money laundering or terrorist financing;

(d) doubts the veracity or adequacy of documents, data or information previously obtained for the purposes of identification or verification.

(2) Subject to regulation 16(4), a relevant person must also apply customer due diligence measures at other appropriate times to existing customers on a risk-sensitive basis.

(3) A relevant person must—

(a) determine the extent of customer due diligence measures on a risk-sensitive basis depending on the type of customer, business relationship, product or transaction; and

(b) be able to demonstrate to his supervisory authority that the extent of the measures is appropriate in view of the risks of money laundering and terrorist financing.

Ongoing monitoring

8.—(1) A relevant person must conduct ongoing monitoring of a business relationship.

(2) “Ongoing monitoring” of a business relationship means—

(a) scrutiny of transactions undertaken throughout the course of the relationship (including, where necessary, the source of funds) to ensure that the transactions are consistent with the relevant person’s knowledge of the customer, his business and risk profile …”

Factors to consider using the RBA include: Country risk, product or service risk, delivery risk and customer risk .

Refer to your local regulator for guidance on managing terrorist financing and money laundering risk.

If you require any assistance please don’t hesitate to contact our team.