Risk-Based Approach

Under a risk-based approach, banks assess clients, products, and activities according to their potential exposure to risks such as money laundering, fraud, or regulatory non-compliance. Higher-risk cases are subject to enhanced controls and more extensive review, while lower-risk cases follow simplified or standard procedures. This allows banks to focus resources where risk is greatest while remaining compliant.

Synonyms

Acronyms

RBA

Examples

For example, during client onboarding, a bank applies standard due diligence for low-risk customers. If a customer is identified as higher risk – such as a politically exposed person or a client with complex cross-border activity – the bank applies enhanced due diligence, including additional verification and more extensive background checks.

FAQ

What are the benefits of a risk-based approach to compliance?

A risk-based approach allows banks to allocate more resources to higher risks, enhancing effectiveness and efficiency.

How are risk appetites and tolerances set?

Risk appetite is set by the board in line with business strategy, considering factors like revenue goals, customer targets and regulatory expectations.