Updated
GL-R-03
Glossary · Due Diligence and compliance
Risk-based approach
Risk-based approach — a compliance principle: the depth of the check matches the client risk level rather than being the same for everyone.
01 / In 30 seconds
The short answer
- What it is
- The risk-based approach — the depth of the check matches the level of risk
- The essence
- The higher the client’s risk, the more thorough the check
- Not uniformly
- A simple profile — lighter, a complex one — stricter
- Basis
- A key principle of the FATF standards and of all compliance
- How to use it
- Understand why you in particular are checked more or less strictly
02 / In plain words
What Risk-based approach means
The risk-based approach is the fundamental principle of modern compliance: the effort and depth of a check must match the level of risk a client or transaction presents. Instead of checking everyone the same way, organisations concentrate resources where the risk is higher and simplify procedures where it is low.
In practice this means that a client with a simple and transparent profile (a clear source of income, a clean reputation, a low-risk jurisdiction) goes through a standard check, while a client with higher risk (PEP status, a complex international structure, a link with a high-risk country, large sums) goes through an enhanced one (EDD). This approach is built into the FATF standards and underlies how banks and citizenship programmes work.
For the client, understanding this principle removes unnecessary emotion: if you are checked more strictly, it is not “nit-picking” or a suspicion of wrongdoing but a consequence of your risk profile. Conversely, a simple profile speeds up the process. The right strategy is to understand your level of risk and prepare accordingly. We assess the client’s risk profile in advance and prepare the file for the depth of check that awaits it.
A case from practice
Two clients open accounts in different ways: one has a simple profile and a standard check, the other PEP status and an enhanced check (EDD). The second takes it as nit-picking. We explain: it is the risk-based approach, not a suspicion, and we prepare the file in advance for the required depth.
Where this principle applies
- Due diligence at banks and programmes
- Determining the depth of the check
- Assessing the client’s risk profile
- Choosing between a standard and an enhanced check
- Understanding the reasons for strictness
- Preparing the file for the level of risk
03 / What it covers
What matters about the risk-based approach
The essence
- Risk sets the depth
- Not everyone the same
- Resources where the risk is
Low risk
- A simple profile
- A standard check
- Faster
High risk
- PEP, a complex structure
- Enhanced due diligence (EDD)
- More documents
Basis
- FATF standards
- The basis of compliance
- Banks and programmes
04 / How it works
How it works
Assessing the client’s risk profile
Determining the risk level
Choosing the depth of the check
A check according to the level of risk
Decision
05 / Key facts
What you need to know
01
The risk-based approach sets the depth of the check by the level of risk
02
Clients are not all checked the same way
03
Low risk — a standard check; high risk — enhanced (EDD)
04
The principle is built into the FATF standards
05
A strict check is a consequence of the profile, not a suspicion
Common mistakes
- Taking a strict check as personal suspicion
- Not assessing your real risk profile
- Coming with a file prepared for the wrong depth of check
- Underestimating your higher risk (PEP, structure)
- Expecting the same approach to every client
06 / Expert advice
How to prepare in advance
Understanding that the depth of the check depends on the risk profile, assess your level of risk honestly in advance: is there PEP status, a complex structure, a link with high-risk jurisdictions, large sums? For higher risk an enhanced file (EDD) is prepared; for low risk, a standard pack. Then the check goes proportionately and without surprises.
What we do for you. We assess your risk profile in advance and prepare the file for the depth of check that awaits you: standard for a simple profile or enhanced for higher risk. That way you understand the logic of the checks and pass them proportionately — the strictness turns out to be a consequence of your profile, not an obstacle.
Klara RihterBanking compliance and source of funds specialist
07 / Questions
Frequently asked questions
A compliance principle: the depth of the check matches the client’s level of risk. Instead of checking everyone the same way, resources are concentrated where the risk is higher.
Because of your risk profile: PEP status, a complex structure, a link with a high-risk jurisdiction or large sums raise the risk. It is not a suspicion but a consequence of the profile.
Clients with a simple and transparent profile: a clear source of income, a clean reputation, a low-risk jurisdiction. They pass a standard check faster.
It is built into the FATF standards and underlies how banks and citizenship programmes work around the world.
Enhanced due diligence (EDD) is precisely the response to higher risk under the risk-based approach: the higher the risk, the deeper the check.
Assess your level of risk honestly and prepare the file for the required depth: enhanced for higher risk, standard for low. We help do this.
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