RISK-BASED CUSTOMER DUE DILIGENCE Regulatory Approaches

Regulators face a challenge in balancing policies of anti-money laundering and combating the financing of terrorism, for financial integrity, against placing the least burden on outreach to the poor and unbanked. Allowing simplified CDD procedures in lower-risk settings may ease entry to the formal financial system for the unbanked, which in turn serves AML/CFT goals. This Technical Note outlines the main risk-based approaches to CDD, provides examples from regulatory systems across the globe, and weighs the pros and cons of each approach.