Risk-Based Approach â Guidance for Money Service Businesses

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THE FINANCIAL ACTION TASK FORCE (FATF)The Financial Action Task Force (FATF) is an independent inter-governmental body that develops and promotespolicies to protect the global financial system against money laundering and terrorist financing.Recommendations issued by the FATF define criminal justice and regulatory measures that should beimplemented to counter this problem. These Recommendations also include international co-operation andpreventive measures to be taken by financial institutions and others such as casinos, real estate dealers,lawyers and accountants. The FATF Recommendations are recognised as the global anti-money laundering(AML) and counter-terrorist financing (CFT) standard.For more information about the FATF, please visit the website:WWW.FATF-GAFI.ORG© 2009 FATF/OECD. All rights reservedNo reproduction or translation of this publication may be made without prior written permission.Applications for such permission, for all or part of this publication, should be made tothe FATF Secretariat, 2 rue André Pascal 75775 Paris Cedex 16, France(fax +33 1 44 30 61 37 or e-mail: contact@fatf-gafi.org).
Risk-Based Approach – Guidance for Money Service Businesses - July 2009 TABLE OF CONTENTSSECTION ONE: USING THE GUIDANCE & PURPOSE OF THE RISK-BASED APPROACH ... 5Chapter One: Background and Context ........................................................................................... 5Purpose of the Guidance: ....................................................................................................................... 5Target Audience, Status and Content of the Guidance: ......................................................................... 6Chapter Two: The Risk-Based Approach – purpose, benefits and challenges ................................ 7The purpose of the Risk-Based Approach .............................................................................................. 7Potential Benefits and Challenges of the Risk-Based Approach ............................................................ 8Chapter Three: FATF and the Risk-Based Approach ....................................................................... 10General Risk Principle ......................................................................................................................... 10Specific Risk References ...................................................................................................................... 10Applicability of the risk-based approach to terrorist financing ............................................................ 13Limitations to the risk-based approach ................................................................................................ 14Distinguishing Risk-Based Supervision and Risk-Based Policies and Processes ................................ 15SECTION TWO: GUIDANCE FOR PUBLIC AUTHORITIES ......................................................... 16Chapter One: High-level principles for creating a risk-based approach ........................................ 16Principle One: Understanding and responding to the threats and vulnerabilities:a national risk assessment ........................................................................................ 16Principle Two: A legal/regulatory framework that supports the application ofa risk-based approach .............................................................................................. 16Principle Three: Design of a supervisory framework to support the application ofthe risk-based approach ........................................................................................... 17Principle Four: Identifying the main actors and ensuring consistency ............................................. 17Principle Five: Information exchange between the public and private sector ................................. 19Chapter Two: Implementation of the Risk-Based Approach ......................................................... 20Assessment of Risk to Inform National Priorities ................................................................................ 20Regulatory Supervision – General Principles ...................................................................................... 21SECTION THREE:GUIDANCE FOR MONEY SERVICES BUSINESSES ONIMPLEMENTING A RISK-BASED APPROACH ................................................ 26Preamble ................................................................................................................................. 26Chapter One: Risk Categories ........................................................................................................ 28Country/Geographic Risk ..................................................................................................................... 28Customer Risk ................................................................................................................................. 29Product / Transaction / Service Risk .................................................................................................... 30Agents Risk ................................................................................................................................. 32Variables That May Impact Risk.......................................................................................................... 33Controls for Higher Risk Situations ..................................................................................................... 34Chapter Two: Application of a Risk-Based Approach ................................................................... 35Customer Due Diligence/Know Your Customer .................................................................................. 35Monitoring of Customers and Transactions ......................................................................................... 37Suspicious Transaction Reporting ........................................................................................................ 37© 2009 FATF/OECD - 3
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Risk-Based Approach â Guidance for Money Service Businesses