Explanation:
A risk-based approach to anti-money laundering (AML) and combating the financing of terrorism (CFT) allows financial institutions to allocate their resources most effectively. By identifying and assessing the varying levels of risk associated with different customers, products, services, and geographic locations, banks can apply enhanced due diligence and stricter monitoring to the areas of highest risk. Consequently, this targeted approach enables banks to better detect instances of money laundering exactly where the risks are highest, rather than applying a uniform but less effective standard across all activities.
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Q.3128 What is the reasoning behind implementing a “risk-based anti-money laundering and combating financial terrorism approach”?
A
It allows banks to focus on selling products that surpass a specified “hurdle” rate of return.
B
A qualitative approach would yield better results than a quantitative approach.
C
Banks can best detect instances of money laundering by customers where the money laundering risks are high.
D
It allows banks to best monitor their profits.
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