The FATF has published a guidance document on risk-based supervision to help supervisors assess risks and accordingly prioritize resource allocation. The FATF’s guidance on this matter is composed of three parts that discuss risk-based supervision, risk assessment for supervised sectors, how to address common challenges in risk-based supervision, and examples of strategies for supervising non-financial businesses and virtual asset service providers.
Supervisors help businesses understand the risks facing them and how they can mitigate those risks. Supervisors also ensure that these businesses comply with AML/CFT obligations. The FATF is guiding supervisors to shift from rules-based supervision to risk-based supervision. This is because a risk-based approach reduces the burden on lower risk sectors and ensures financial inclusion. Risk-based supervision means that the supervisor’s supervisory approach is tailor-made for the assessed risks. This allows supervisors to effectively allocate their limited resources to mitigate the ML/TF risks they have identified.
For the risk-based approach to be effective, supervisors need to collaborate with government and the private sector to understand the risks affecting the entities they supervise. They must possess adequate powers, skills, support and resources. Supervisors must also regularly update their understanding of risks and upgrade their supervisory approach accordingly.
Source: FATF