The risk-based approach is the process of identification, assessment, and understanding risk factors, as well as the application of Financial Action Task Force (FATF) recommendation and measures on combating the financing of terrorism and money laundering and proliferation in order to ensure effective mitigation process in accordance with the level of risk. A risk-based approach is controlled to the effective implementation and management of business or organization recommendations. The flexibility of risk-based approaches allows for the most efficient use of available resources by the banks, countries and other competent authorities to decide on the most effective measures for mitigating identified risks, (Ongena, Popov and Udell). It enables the organization to focus on identified risks and take enhanced measures in situations according to the level of the risks. The implementation of the risk-based approaches helps in avoiding consequences of inappropriate de-risking characters. In the current papers, we will defines and identify best practices of a risk-based approach, analyze the framework of a risk-based approach, discuss the measurement of a risk-based approach, and compare risk-based approach with the rule-based approach.
Definition and Best Practices of a Risk-Based Approach.
According to Andretta, Massimo, the risk-based approach can be defined as the measures that countries, state agencies or authorities, and private sectors take to identify, assess, and understand risks which can expose its effective running and apply measures in a manner that can help in mitigating these risks. The risk-based approach has become central to the effective implementation of the organizational recommendation. Risk-based approach helps in strengthening the safeguard and protection of the integrity of organizational management globally by providing government agencies with stronger tools to act against these risks, increase emphasis on risk-based approach, especially identification of preventive measures and supervision and adoption of more flexible sets measures that target the effective use of resources, (Jia, Zhao and Zhang 29-31).