KYC360º FAQ

What is the origin of the Risk Based Approach?

The RBA to money laundering and terrorist financing was first explicitly mentioned by the Financial Task Force (FATF) in the 2003 revision of the 40 Recommendations. Financial services were increasingly feeling the burden of intensified supervision and the associated cost burden. The RBA allows firms to proportionately allocate resources where they are needed most. The RBA eases the burden of rules based compliance. Recommendation 5 from the FATF states;

“Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution’s knowledge of the customer, their business and risk profile, including, where necessary, the source of funds.

Financial institutions should apply each of the CDD measures[ ……….]but may determine the extent of such measures on a risk sensitive basis depending on the type of customer, business relationship or transaction. The measures that are taken should be consistent with any guidelines issued by competent authorities. For higher risk categories, financial institutions should perform enhanced due diligence. In certain circumstances, where there are low risks, countries may decide that financial institutions can apply reduced or simplified measures.”