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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:

  1. Principles-based approach
  2. Single low-risk threshold
  3. 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.

CGAP
CGAP is a global partnership of more than 30 leading development organizations that works to advance the lives of poor people through financial inclusion. Using action-oriented research, we test, learn and share knowledge intended to help build inclusive and responsible financial systems that move people out of poverty, protect their economic gains and advance broader development goals. We research and experiment to achieve proof of concept and extract lessons that can be built to scale by our partners, who apply our insights in the marketplace.