FATF Guidance on the Risk-Based Approach for the Life Insurance Sector

RBA Life Insurance 180

FATF Guidance on the RBA for the Life Insurance Sector

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The purpose of this Guidance is to:

  • Support the development of a common understanding of what the risk-based approach involves;
  • Outline the high-level principles involved in applying the risk-based approach;
  • Identify characteristics of risks indicating that enhanced mitigation strategies may be warranted;
  • Describe good public and private sector practice in the design and implementation of an effective risk-based approach; and
  • Foster communications between public and private sectors that are conducive to the prevention of money laundering and terrorist financing

Applying a risk-based approach is neither mandatory nor prescriptive. A properly applied risk-based approach does not necessarily mean a reduced burden, although it should result in a more cost effective use of resources. For some countries, applying a rules based system might be more appropriate. Countries will need to make their own determinations on whether or how to apply a risk-based approach.

Target Audience, Status and Content of the Guidance

The Guidance is primarily addressed to public authorities and life insurance companies and intermediaries (i.e. life insurance brokers and agents) and aims to set out the key elements of an effective risk-based approach and identifies the types of issues that both public authorities and life insurance companies and intermediaries may wish to consider when applying a risk-based approach. 

The Guidance recognises that each country and its national authorities, in partnership with its life insurance companies and intermediaries, will need to identify the most appropriate regime, tailored to address individual country risks. Therefore, the Guidance does not attempt to provide a single model for the risk-based approach, but seeks to provide guidance for a broad framework based on high level principles and procedures that countries may wish to consider when applying the risk-based approach with the understanding that this guidance does not override the purview of national authorities.