top of page

How does transaction monitoring relate to taking a risk-based approach to Anti-Money Laundering (AML)?

Broadly speaking, a risk-based approach requires that financial institutions employ intensive measures such as enhanced due diligence (<a href="/glossarycollection/enhanced-due-diligence" style="color:#48277C;" target="_blank" title="Enhanced Due Diligence"><u>EDD</u></a>) to manage risk for clients or scenarios that are deemed higher risk, while for lower risk clients or scenarios, and where there is no suspicion of money laundering or terrorist financing, simplified measures may be permitted.<br/><br/>

To apply a risk-based approach, countries and institutions must take appropriate measure to identify and assess the risks of money laundering and terrorist financing for different market segments, intermediaries and products on an ongoing basis. in line with the concept of a risk-based approach is an acknowledgement that that the nature and extent of the AML and 'Combating the Financing of Terrorism' (CFT) controls will depend on a number of factors. The Financial Action Task Force (FATF), a global organisation thats sets standards related to AML/CFT procedures, recognises the following factors as determinants of of the proper extent of AML/CFT controls.<br/><br/>

- The nature, scale and complexity of a financial institution's business;<br/><br/>

- The diversity of a financial institution's operations, including geographic diversity;<br/><br/>

- The financial institution's customer, product and activity profile;<br/><br/>

- The distribution channels used;<br/><br/>

- The degree of risk associated with each area of the financial institution's operation;<br/><br/>

- The extent to which the financial institution is dealing directly with the customer or is dealing through intermediaries, third-parties, correspondents or non face-to-face access;<br/><br/>

- The volume and size of of the transactions.

bottom of page