What is the purpose of a risk-based approach in AML?

The purpose of a risk-based approach in anti-money laundering (AML) is to allocate resources efficiently by focusing on higher-risk clients. This means that financial institutions and other entities assess the level of risk associated with different customers and transactions, determining which ones require more intense scrutiny and monitoring based on their potential to facilitate money laundering or other financial crimes.

By concentrating efforts on high-risk areas, organizations can effectively manage their compliance resources and implement strong AML controls where they are most needed, thereby enhancing overall efficiency. This approach allows institutions to use their resources pragmatically, ensuring that they are not stretched too thin by trying to apply the same level of scrutiny to all customers and transactions, regardless of their risk profile.