The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotes policies to protect the global financial system against money laundering, terrorist financing and the financing of the proliferation of weapons of mass destruction.
The FATF Recommendations set out a comprehensive international framework of measures which countries should implement in order to combat money laundering and terrorist financing, as well as the financing of the proliferation of weapons of mass destruction.
When the FATF updated its Recommendations in 2012 one of the most important changes was the increased emphasis on the risk-based approach to anti-money laundering / countering the financing of terrorism (AML / CFT) in relation to preventative measures and supervision.
A risk-based approach to AML / CFT means that countries, competent authorities and financial institutions are expected to identify, assess and understand the money laundering / terrorist financing risks to which they are exposed and take AML / CFT measures commensurate to those risks in order to mitigate them effectively.
The FATF has now published an updated version of its guidance of a risk-based approach for the banking sector. The purpose of the guidance is to:
- outline the principles involved in applying a risk-based approach to AML / CFT;
- assist countries, competent authorities and banks in the design and implementation of a risk-based approach to AML / CFT by providing general guidelines and examples of current practice;
- support the effective implementation and supervision of national AML / CFT measures, by focusing on risks and on mitigation measures; and
- support the development of a common understanding of what the risk-based approach to AML / CFT entails.
The guidance has three sections. Section 1 covers the key elements of the risk-based approach and needs to be read in conjunction with sections 2 and 3, which provide specific guidance on the effective implementation of a risk-based approach to banking supervisors and banks. The guidance is non-binding.
The FATF will develop a separate paper on the risk-based approach for the securities sector. The FATF will also review its other risk-based approach guidance papers.
View FATF risk based approach for the banking sector, 27 October 2014