FATF Clarifies Risk-Based Approach For Banks

The Financial Action Task Force (FATF), the international standard setting body for anti-money laundering and counter-financing of terrorism, has taken a welcome step forward into the risk based approach being adopted by banks to prevent money laundering and terrorist financing.

At its latest Plenary in October 2014, FATF discussed the issue of de-risking, which it sees as financial institutions terminating or restricting business relationships with clients or categories of client to avoid, rather than manage, risk in line with FATF's risk-based approach. FATF recognises that de-risking can be as a result of various factors such as prudential requirements, anxiety after the global financial crisis and reputational risk but it sees the issue as crucially important for two reasons: