The risk based approach is a new practice within the AML/CFT field (since 2012). There exists a uniform and across-the-board perception within the AML/CFT community that remittances (particularly cross-border remittances) are by definition more susceptible to ML/TF risks than are other financial products and services. However, there has hitherto also been a lack of decisive and empirical evidence on the ML/TF risks associated with low-value remittances.
ML/TF risk management is a process that includes the identification of ML/TF risks, the assessment of these risks, and the development of methods and measures to manage and mitigate the risks identified. The general principle of a risk-based approach to AML/CFT is that, where the risks are identified as high, financial institutions should take enhanced measures to manage and mitigate those risks; and that, correspondingly, where the risks are identified as lower, simplified measures may be applied.
The take on of the risk-based approach has been very slow from most of the institutions in South Africa that offer low-value products that target the mass market and unbanked sector of the community. Given the importance of the remittances sector for increasing financial inclusion, and
the fact that remittances constitute one of the most vital financial services for the lower-income and migrant population in South Africa, this kind of regulatory reaction illustrates the potential difficulty of reconciling financial integrity and financial inclusion – and strongly suggests the need for increased and ongoing empirical research and accurate, up-to-date, contextualized evidence.