Risk Based Approach (RBA)
Overview
A Risk-Based Approach (RBA) is a compliance methodology that tailors controls and resources according to the level of risk posed by customers, transactions, or activities. Instead of applying the same checks to all, financial institutions assess risk factors such as customer profile, geographic exposure, products, and delivery channels to determine the intensity of due diligence.For example, a politically exposed person (PEP) in a high-risk jurisdiction may require enhanced due diligence, while a low-risk retail customer may only need standard checks. Regulators such as the Financial Action Task Force (FATF) recommend the RBA to make compliance efforts more effective and proportionate. By applying stronger measures where risks are higher and simplified controls where risks are minimal, banks, fintechs, and payment providers can better detect financial crime while reducing operational burdens.
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FAQ
What is a Risk-Based Approach?
A compliance method where controls are proportionate to assessed risk.
Why do regulators promote it?
It improves efficiency and ensures high-risk cases get more scrutiny.
How is it applied?
Through risk scoring, EDD for high-risk, and lighter checks for low-risk.
What makes it effective?
Continuous monitoring, documented methodology, and governance oversight.