Rethinking AML/CFT risk management: Towards a risk strategy for banks

Abstract

This study conceptualises a risk strategy framework for anti-money laundering and countering the financing of terrorism (AML/CFT) through a theory synthesis approach, integrating contributions from four literature streams into a conceptual framework. The framework consists of three interrelated components: Strategic Choice, Organisational Alignment, and Dynamic Capability. Strategic Choice defines the bank's deliberate strategic position regarding AML/CFT risk exposure. Organisational Alignment operationalises it through the risk governance structures and cultural norms, and Dynamic Capability ensures recalibration under changing conditions, both on strategic and operational levels. The study concludes that effective AML/CFT risk management requires continuous alignment between Strategic Choice and Organisational Alignment; misalignment may cause the organisation to drift from its strategic intent, resulting in unintended or unconscious risk-taking. The framework provides banks with a structured basis for moving beyond reactive compliance toward proactive and strategically coherent risk management. To support practical application, the framework is further operationalised through a three-level typology — reactive, proactive, and strategic — reflecting how AML/CFT Risk Strategy is integrated into the organisation's broader strategy. Although developed in the AML/CFT context, the framework and three-level typology have broader relevance for risk management in highly regulated industries.