FATF’s Risk-Based Approach: Has the Pendulum Swung too Far?

The introduction of the mandatory risk-based approach in the FATF standards in 2012 was revolutionary. It promised to free institutions from a general rule-based approach to empower them to manage their risks individually. This approach has however not delivered as much benefit as was promised. It burdens institutions, especially smaller institutions, which may not have sufficient resources to undertake appropriate financial crime risk assessments. It also leads to perverse unintended consequences that regulators are unable to effectively prevent. This chapter considers some of the questions regarding the risk-based approach in practice and concludes with suggestions for further research.