The Wolfsberg Group ¦ Statement on the RBA in Financial Crime Risk Management

The Wolfsberg Group: Statement on the Risk-Based Approach in Financial Crime Risk Management

The Wolfsberg Group has emphasized the critical role of the risk-based approach (RBA) in designing and maintaining effective financial crime risk management (FCRM) programs within financial institutions (FIs). This approach shapes an FI’s risk appetite, policies, measures, and controls, making it a cornerstone of combating financial crime. The Group first highlighted the importance of RBA in 2006 with its paper Guidance on an RBA for Managing Money Laundering Risks. Since then, the concept has gained widespread recognition across both private and public sectors. In response to ongoing regulatory reform and evolving standards, the Wolfsberg Group has decided to clarify the essential elements that constitute an effective RBA.

Bastian Schwind-Wagner_Follow "The Wolfsberg Group emphasizes that a risk-based approach is essential for effective financial crime risk management. Financial institutions must identify and assess risks, applying controls proportionate to those risks. Focus should be on prioritizing higher-risk areas and achieving measurable, effective outcomes."

Definition of the Risk-Based Approach

Aligned with the Financial Action Task Force (FATF), the Wolfsberg Group defines RBA as the process by which countries, competent authorities, and financial institutions:

• Identify,
• Assess,
• Understand,

the financial crime risks they face, and then take proportionate actions that appropriately correspond to the level of identified risk and effectively mitigate those risks.

This approach is fundamental to achieving effectiveness — an outcome-focused goal at the heart of the Group’s work.

Three Core Elements of an Effective RBA

Financial institutions must demonstrate three key components when designing and managing their FCRM programs:

1. Proportionality: FIs should tailor their FCRM programs proportionally to their specific business model. Factors influencing this include size, scale, geographic footprint, customer base, and risk appetite. The risk assessment must inform this proportionality to ensure resources are aligned with actual risks.

2. Prioritisation: Attention and resources should be focused on higher-risk customers and activities. This may involve stopping, reducing, or redesigning controls and measures that are redundant, duplicative, or ineffective. Prioritisation ensures efficient use of resources and better risk mitigation.

3. Effectiveness: The focus should be on achieving effective outcomes rather than merely following rigid rules. This means adopting a responsive, forward-looking, and dynamic approach to risk management that can adapt to changing threats and circumstances.

Collaboration, Supervisory Support, and Ongoing Initiatives

The Wolfsberg Group stresses that collaboration and dialogue between stakeholders lead to superior outcomes compared to isolated efforts. A supervisory framework that supports FIs in applying an RBA is essential for its success. Recognizing the importance of a well-implemented and supervised RBA, the Group plans to continue developing RBA-related guidance, including updating its 2006 RBA Guidance and revising the 2015 FAQs on Risk Assessments.

Dive deeper

• The Wolfsberg Group ¦ Statement on the Risk-Based Approach ¦ Link