What is Customer Risk Assessment?
Customer Risk Assessment is a series of measures taken when a new business relationship is formed or a transaction is made. It is an essential process for a more accurate analysis of the potential risks that a new customer might bring. Organizations should create customer participation forms to learn more about customers and take the required steps based on their risk levels.
Customer Risk Factors
According to the Prevention of Money Laundering and Funding of Terrorism Regulation, "Risk factors include those relating to customers, countries or geographical areas, product, services, transactions, and delivery channels risk factors.". Customer risk factors are as follows in general terms:
- Customer or Entity: Examining the customer's identity and background. Some people, such as politicians, can launder money easier than an average person.
- Geography: Examining the customer's location. It is easier to launder money in some places, depending on how strong their AML regulations are.
- Product/Services: Examining the purchase of products. Some products might be used to launder money with overbilling or underbilling.
- Delivery Channel: Examining delivery channels and the quality of information of transactions.
- Industry: Examining the source of the money. Money can be laundered easier while passing through some industries than others.
Customer Risk Levels
There are four risk levels, and these are:
- Low: Customers whose identity is easily identified.
- Medium: Customers who pose a higher risk than an average customer.
- High: Customers whose financial activities are monitored with Customer Due Diligence
- Prohibited: Customers who are banned from financial activities due to their involvement in financial crimes.