What are the key principles behind a risk-based approach to AML?
In principle, the risk-based approach shifts the focus of AML compliance from post-analysis of data to proactive judgement. Financial institutions must work on an ongoing basis to understand the money laundering threats they face and deploy commensurate measures to to manage their risk exposure.<br/><br/>
In practice, this means that the customers may be classified individually by their risk exposure - and that 'higher risk' customers are under greater levels of AML scrutiny. Broadly, the risk-based approach allows financial institutions to:<br/><br/>
- recognise the existence of risk;<br/>
- perform assessments of risk;<br/>
- develop and deploy strategies to address risks.<br/><br/>
Implemented effectively the risk-based approach allows for a balanced integration of human judgement and smart technology in the AML compliance process.