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How does a risk-based approach to Anti-Money Laundering (AML) work?

In compliance with the Financial Action Task Force (FATF) recommendations, financial institutions must implement a risk-based program that includes a number of important measures, each designed to accurately identify individual clients and the business in which they are involved. Financial institutions must:<br/><br/>

- Develop and implement suitable Know-Your-Customer (<a href="/glossarycollection/know-your-customer" style="color:#48277C;" target="_blank" title="Know Your Customer"><u>KYC</u></a>) and customer due diligence (<a href="/glossarycollection/customer-due-diligence" style="color:#48277C;" target="_blank" title="Customer Due Diligence"><u>CDD </u></a>) measures to verify that customers are who they say they are and are being truthful about the business in which they engaged. [KYC and CDD are foundational principles of risk-based AML. High risk customers may be subject to enhanced CDD measures for which more identifying information is required].<br/><br/>

- Screen new and existing customers against domestic and international sanctions lists such as the US' 'Specifically Designated Nationals (SDN) and the UN's consolidated lists.<br/><br/>

- Screen against Politically Exposed Persons (<a href="/glossarycollection/politically-exposed-person" style="color:#48277C;" target="_blank" title="Politically Exposed Person"><u>PEP</u></a>) lists. When a client's political status changes, their money laundering risk profile also often changes.<br/><br/>

- Screen for adverse media. If the client is the subject of negative news anywhere in the world, their AML risk profile may also change.<br/><br/>

- Appoint a Money Laundering Reporting Officer (<a href="/glossarycollection/money-laundering-reporting-officer" style="color:#48277C;" target="_blank" title="Money Laundering Reporting Officer"><u>MLRO</u></a>). The individual appointed to this position must hold sufficient authority within the company to be able to identify and act on money laundering threats.

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