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Guidance on Risk-Based SupervisionAcknowledgementsAcronymsExecutive SummaryPart One: High-Level Guidance on Risk-Based Supervision1. Introduction1.1. Objectives and scope1.2. Overview of relevant FATF recommendations and assessment methodology1.3. Common supervisory frameworks1.4. Characteristics of an effective risk-based supervisory framework1.5. Overview of the risk-based supervision process2. Supervisors' risk understanding2.1. What is the scope and purpose of supervisory risk assessments?2.2. What does the supervisory risk assessment process involve?2.3. What information does a supervisor need to identify and understand the risks?2.4. How do supervisors keep their risk understanding updated?3. Risk-based approach to supervision3.1. What is a supervisory strategy?3.2. How can supervisory strategies address the risks identified?3.3. How can supervisors adjust their approach to vary the nature, frequency, intensity and focus of supervision?3.4. How can supervisors use a combination of off-site and on-site tools to strengthen their risk-based approach?3.5. How should supervisors treat lower risk sectors and entities?3.6. How can supervisors develop a more robust risk-based approach over time?3.7. How should remedial actions and available sanctions be applied in risk-based supervision?3.8. How should supervisors measure the effectiveness of their risk-based approach?3.9. Domestic co-operation, including between AML/CFT supervision and prudential supervision3.10. International co-operation to achieve a risk-based approach to supervision4. Cross-cutting issues4.1. Use of technology by supervisors ("SupTech")4.2. Engagement with the private-sector4.3. Use of third-partiesAnnex A. Overview of supervisory toolsPart Two: Strategies to Address Common Challenges in Risk-Based Supervision & Jurisdictional ExamplesObjectives and scopeOverview of challenges identified in Mutual Evaluations5. Strategies to address challenges in assessing ML/TF risks5.1. Disconnect from, or misalignments with, the NRA5.2. New areas of supervisory responsibility - identifying the regulatory population5.3. New areas of supervisory responsibility - identifying and understanding the risks5.4. Difficulties in assessing risks at the entity-level5.5. Building risk understanding over time5.6. Engagement with other authorities to supplement the risk assessment5.7. Data collection issues5.8. Special considerations for DNFBP supervisors5.9. Other guidance6. Applying risk-based supervision6.1. Sequencing to establish risk-based supervision6.2. Insufficient resources or inexperienced staff6.3. Supervising sectors with a large number of entities and limited risk information6.4. Poor independent audits of entities6.5. Special considerations for DNFBP supervisors6.6. Role of self-regulatory bodies for DNFPBs6.7. Lack of clarity in the division of supervisory roles and responsibilities6.8. Zero-tolerance or zero-failure approach6.9. Integrated vs. Standalone AML/CFT Supervision6.10. Risk-based supervision strategies should be up-to-date and dynamic6.11. Logistical challenges in performing on-site inspections6.12. Useful resources for further readingPart Three: Country ExamplesObjectives and scope7. Supervision of financial institutions7.1. Assessing risks and risk-based supervision7.2. Use of technology by supervisors ("SupTech")7.3. Engagement with the private sector7.4. Offsite supervision tools7.5. Domestic Co-operation7.6. Special considerations for the MVTS sector8. Supervision of DNFBPs8.1. Risk assessment8.2. Introducing a risk-based approach to supervision of DNFBPs8.3. Co-ordination and information sharing9. Supervision of VASPs9.1. Identifying the VASP population9.2. Identification of risk in the VASP sector9.3. VASP sector outreach and guidance9.4. Use of technology in VASP supervision9.5. Recruitment and training of VASP supervisors9.6. Multi-jurisdictional operations and supervisory co-operation on VASPs10. Supervision in the COVID-19 context10.1. Risk-based flexibility for reporting entities and clear communication of expectations and provision of GuidanceGlossary
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Version date: 4 March 2021 - onwards

Acronyms

AML/CFT

Anti-money Laundering/Countering the Financing of Terrorism

DNFBF

Designated Non-financial Businesses and Professions

FATF

Financial Action Taskforce

FI

Financial Institution

FIU

Financial Intelligence Unit

MI

Management Information

ML

Money Laundering

MVTS

Money Value Transfer Service

RPA

Robotic Process Automation

SRA

Supervisory Risk Assessments

SRB

Self-Regulatory Body

TF

Terrorist Financing

TCSP

Trust and Company Providers

VASP

Virtual Asset Service Providers
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