Risk based approach

Risk based approach
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Risk-Based Approach (RBA) involves set of management techniques and processes used in banks and financial institutions to prevent money laundering and fraud. Concept of RBA was created by the Financial Action Task Force (FATF) which define its purpose as:

  • Prevent or mitigate money laundering and financing threats,
  • Allow resources of financial institutions to be allocated in the most efficient ways,
  • Resources should be directed so that the greatest risks receive the highest attention,
  • Financial institutions should be required to take steps to identify and assess their risks for: customers, countries, and products/services/transactions/delivery channels.

Many factors consist of risks, even if only the type of customer they are dealing with, the way the customer acquires the readiness. As soon as the person is thoroughly verified, it can be said that he is cloned to expose the company to risk, by washing money. The company must therefore determine for itself what behaviour to adopt in order to avoid similar events. It has to carefully verify customers, assess to what extent the scope of the company's activity is risky[1]. The risk can affect not only the company, but also the products it offers, the employees who are employed in it or the services. Depending on the situation, the company can analyze the risk on the employees, customers who want to buy some shares, on the products that the company wants to acquire, necessary for example for production, or on the ways of delivery that it can offer to its customers in the future. Of course, RBA also apply financial situations, national authorities, not only companies. The following approaches should be used to identify and identify risks, establish the company's risk tolerances and develop measures to prevent or reduce risks.

Money laundering

Money laundering means using or putting counterfeit money into circulation and using it to carry out, for example, illegal economic activities, to buy products. Money laundering is very popular in the drug world, where the mafias run their businesses illegally. In times of technical progress and new applications, it is difficult to find a crime. False money is often mixed with money that is legally obtained from the profits of, for example, a company. Criminals try to hide fake money and set up many bank accounts, buy valuable items in which they invest money or simply hide it in various places.

We can distinguish 3 types of money origin[2]:

  1. Pure sources
    • The income which comes from reliable sources, and taxes were paid in equal measure,
  2. Grey source
    • The income from activities which are not legally conducted and taxes have not been paid,
  3. Dirty sources
    • Most often obtained from criminal activity.

Elements of risk based approach

The four most important steps to be taken with a risk-based approach can be identified:

  1. Risk assessment of business activities
    • The risk can be defined as the wattage that occurs during the course of economic activity and that can cause the company to be financially unstable. Risk assessment is to act as a tool to prevent such risks. The development of this system at the beginning of the activity allows the system to inform more effectively about the possibility of the occurrence of risk.
  2. Risk mitigation to prevent identified risks
  3. Customer identification
  4. Monitoring of potentially risky financial transactions



  1. Romney M, Steinbart P.(2003). The Risk-Based Audit Approach. Accounting Information Systems, 10-27.
  2. Walker J. (1999). Global Money Laundering. How Big is Global Money Laundering?, 1.

Author: Kamila Wronkowska