Risk-Based Customer Due Diligence: Regulatory Approaches
Regulators face a challenge in balancing policies on anti-money laundering and combating the financing of terrorism against placing the least burden on outreach to the poor and unbanked. This Technical Note provides guidance on using risk-based approaches to customer due diligence (CDD), supported by examples drawn from around the world. There are three regulatory options for employing risk-based CDD:
- Principles-based approach
- Single low-risk threshold
- Framework of multiple risk tiers.
Each requires regulators to determine the level of risk and then to decide the appropriate processes of simplified due diligence.