Why Risk based approach

In 1990, KYC and AML legislation was based on the Risks and controls related to Retail banking but didn’t fit other business models such as Commercial, Private, Wealth, etc. This approach requires FI to treat a retired man in his 70’s, like a businessman receiving funds from countries associated with a trade-in blood diamond.

This one- size- fit- all type of approach would mean that scarce resources would be spread equally among all clients wherein there is a high probability that effort would be wasted on clients who very unlikely to have any involvement with ML/TF crimes while less effort is allocated for clients with ML/TF exposure. In Feb 2012, FATF published the revised FATF 40 recommendations providing a new approach to managing risk “ Risk-Based Approach (RBA) to combating ML/TF” outlining the importance of implementing it as part of the AML program in banking for the effective implementation of the FATF standards.

The aim for the RBA is to shift the focus from simply ticking boxes to satisfy the regulators, to providing a flexible set of measures that enable FI to assess the risk associated with ML/TF.

About Author

Maya Alorr Badih is Highly qualified banking professional with over 12 years of experience in the UAE Banking industry. She has In-depth knowledge on the AML/CFT Compliance laws, Rules, and Regulations.