Transcript Slide 1

Risk-Based Approach to AML/CFT
Terence Donovan, Financial Integrity Group, Legal Department, IMF
March 2009
Disclaimer: The views expressed herein are those of the author and should not be attributed to the IMF, its Executive
Board, or its management.
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Basis in international standard
2003 revision of FATF Recommendations provide, for
the first time, explicit recognition of the risk-based
approach
Multiple references to ML/FT risk and to risk
management
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Definition of financial institutions
CDD
Internal controls
Supervision
It is NOT mandatory to apply a risk-based approach,
except when dealing with higher risks
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Risk Principles for
Customer Due Diligence (CDD)
CDD is a wider concept than Know Your Customer (KYC)
Financial institutions should apply each of the CDD
measures but may determine the extent of such measures
on a risk sensitive basis depending on the type of
customer, business relationship or transaction. The
measures that are taken should be consistent with any
guidelines issued by competent authorities.
For higher risk categories, financial institutions should
perform enhanced due diligence.
In certain circumstances, where there are low risks,
countries may decide that financial institutions can apply
reduced or simplified measures.
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Issues with the Risk-Based Approach
For many countries Risk-based Approach (RBA)
is still new and untested.
Documentation being developed to assist
implementation.
No consistent understanding of meaning and
application of RBA.
Financial institutions unclear of supervisors’
expectations.
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Some benefits of RBA
Requires financial institutions to think about
AML/CFT risk.
Allows for less rigid alternative to checklist
approach to compliance and supervision.
Flexibility as risks change over time.
Less inconvenience for legitimate customers.
Makes sense to financial institutions and their
staff.
Launderers cannot as easily plan around RBA.
Financial institutions best placed to know their
own risks.
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Challenges of RBA
Financial institutions need expertise in risk
assessment and management.
Diversity of approaches means complexity for
supervisors.
More difficult to apply legal obligations and
sanctions due to level of discretion.
Financial institutions often prefer legal and
supervisory ‘certainty’.
Can be costly.
Difficult in cash-based economies.
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Thank you for your attention.
Questions? Comments?
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