1. What is a Risk-Based Approach (RBA) in KYC?

Answer:
A Risk-Based Approach means allocating compliance resources based on the customer’s risk profile. Instead of treating all customers equally, institutions:

• Apply Enhanced Due Diligence (EDD) to high-risk customers

• Use Simplified Due Diligence (SDD) for low-risk customers

• Continuously monitor based on evolving risk

2. How do you identify a high-risk customer?

Answer:
High-risk customers are identified based on:

• Geography (high-risk jurisdictions, FATF grey/blacklist)

• Industry (cash-intensive businesses, crypto, NGOs)

• Customer type (PEPs, UBO complexity)

• Transaction behavior (unusual patterns)

3. What is Enhanced Due Diligence (EDD)?

Answer:
EDD is a deeper investigation for high-risk customers involving:

• Source of Wealth (SoW) & Source of Funds (SoF)

• Senior management approval

• Ongoing enhanced monitoring

• Detailed ownership structure analysis

4. Explain Ultimate Beneficial Ownership (UBO) challenges.

Answer:
Key challenges include:

• Complex ownership layers across jurisdictions

• Use of shell companies/trusts

• Nominee shareholders

• Lack of transparency in offshore jurisdictions