Committee of Experts on the Evaluation of Anti-Money Laundering Measures and the Financing of Terrorism (MONEYVAL)

 
 Risk-based approach

A risk-based approach means that countries, state authorities, as well as the private sector should have an understanding of the ML/TF risks to which they are exposed and apply AML/CFT measures in a manner and to an extent which would ensure mitigation of these risks. The set of AML/CFT measures formulated by the FATF was required to be based on an understanding of ML/TF risks already in the 2003 Recommendations. With the revised 2012 Recommendation, risk-based approach has become central to the effective implementation of all the requirements set therein. Whereas in the 2003 Recommendations a risk-based approach was supposed to be applied only in certain circumstances, under the new recommendations it is an overarching requirement, which makes the foundation for an effective implementation of all recommendations.

It is therefore not optional, but a prerequisite for compliance with all other requirements. A risk-based approach therefore consists of the identification, assessment and understanding of risks, as well as the consequent application of AML/CFT measures commensurate to these risks in order to ensure an effective mitigation thereof. The FATF Recommendations require the risk-based approach to be applied on several levels. Firstly, countries should develop a national ML/TF risk assessment in order to understand the full scope of ML/TF risks in the jurisdiction. The outcomes of the national risk assessment should be shared amongst the state authorities, as well as with the private sector.

Secondly, state authorities, in particular supervisory authorities, should take into consideration the national risk assessment, but also understand the particular risks related to their scope of activity. Their actions should be focused accordingly. Focus on key areas increases the efficiency of the use of resources of state authorities and the overall effectiveness of the AML/CFT measures. Finally, the private sector should be aware of the broader risks identified by the state authorities, but should also develop an understanding of the particularities of their business, clients and their products and apply AML/CFT measures in a manner and extent commensurate to such findings.

The FATF issued a number of guidance papers on risk-based approach in order to assist countries to implement the requirements of the FATF Recommendations, but also to help them develop their own guidance for the private sector.

 
Reference documents

Guidance on the implementation of the risk-based approach FATF Guidance 2015 - Guidance for a Risk-Based Approach: Virtual Currencies
FATF Guidance 2014 - Guidance for a Risk-Based Approach: The Banking Sector
FATF Guidance 2013 - Guidance for a Risk-Based Approach: Pre-Paid Cards, Mobile Payments and Internet-Based Payment Services
FATF Guidance 2013 - FATF Guidance: National Money Laundering and Terrorism Financing Risk Assessment
FATF Guidance 2009 - Risk-Based Approach: Guidance for the Life Insurance Sector
FATF Guidance 2009 - Risk-Based Approach: Guidance for Money Service Businesses
FATF Guidance 2008 - Risk-Based Approach: Guidance for Legal Professionals
FATF Guidance 2008 - Risk-Based Approach: Guidance for Casinos
FATF Guidance 2008 - Risk-Based Approach: Guidance for Dealers in Precious Metal and Stones
FATF Guidance 2008 - Risk-Based Approach: Guidance for Trust and Companies Service Providers
FATF Guidance 2008 - Risk-Based Approach: Guidance for Accountants
FATF Guidance 2008 - Risk-Based Approach: Guidance for Real Estate Agents
FATF Guidance 2007 - Guidance on the Risk-Based Approach to Combating Money Laundering and Terrorist Financing

The FATF is currently developing a guidance paper on risk-based approach for money  or value transfer service businesses.  
 
Other documents
Basel Committee on Banking Supervision Guidance 2014 - Sound Management of Risks related to Money Laundering and Financing of Terrorism
FATF Guidance 2013 National Money Laundering and Terrorist Financing Risk Assessment
FATF Other reports 2010 - Global Money Laundering and Terrorist Financing Threat Assessment
FATF Guidance 2008 - Money Laundering and Terrorist Financing Risk Assessment Strategies