What is the intent of "risk-based" approaches in AML compliance?

The intent of "risk-based" approaches in Anti-Money Laundering (AML) compliance is to prioritize resources based on an analysis of the level of risk associated with different clients. This approach acknowledges that not all customers present the same level of risk for money laundering and terrorist financing activities. Therefore, financial institutions are encouraged to assess the risk factors related to their customers, products, services, and geographic locations, allowing them to allocate their compliance resources more efficiently and effectively.

By focusing on higher-risk clients and transactions, institutions can implement enhanced due diligence measures where necessary while allowing them to streamline their efforts for lower-risk clients. This tailored approach helps to ensure that compliance measures are proportionate to the actual risks being faced, achieving a more effective AML framework. As a result, it can ultimately lead to a stronger overall compliance environment and more effective detection of suspicious activities.