With rapid technological advancement today, it is extremely expensive–both in terms of money and time–for a company to use manual risk assessment methods. Thus automated AML Risk Management software becomes fundamental for all kinds of businesses to identify, assess, and minimize money laundering or terrorist financing risk. AML-TRACE has an in-built mechanism that uses Key Risk Indicators (KRIs) to gauge potential money laundering threats.
The customer risk assessment methodology identifies those loopholes in the transactional process wherein it is easiest for money launderers to carry out illegal activities. Besides keeping a check, the risk-based approach by AML-TRACE fulfills a company’s larger concern: it reveals the exact type of client transactions where the rules are being flouted. This is crucial for the company auditors to establish relevant regulations and policies.
These are devised to understand and evaluate the risk of money laundering and terrorist financing for a business. The KRIs for governments worldwide are customer types, nature and size of a business, methods of maintaining relationships with existing customers and hiring new customers, geographical risks, and the types of products and services offered.
Once the key risk indicators mentioned above have been defined, AML risk management is done using the AML Risk Scoring Model. The risk factors are measured, and the findings are assigned a risk range, which spans across five levels; Very Low, Low, Medium, High, and Very High. The AML risk assessment findings by the software disclose individual risk scores for every KRI. Additionally, the total risk score is also calculated: it is the general or compound risk offered by the company.
The application has a risk model defined for each of the broad customer categories (e.g., individuals, corporations, nationality, designation, and so on). Every customer type has different risk parameters. We understand that ‘One size fits all’ does not apply to risk models for various customer categories. Whereas the source of funds would be a risk factor for an individual customer, for a corporation, it would require a different parameter.
We highly suggest that you review your AML risk assessment process to ensure that your company may achieve regulatory compliance. Deploy AML-TRACE in your customer screening and transaction monitoring efforts to access accurate data while reducing false positives.
The money laundering risk posed by a customer depends on the relationship between the customer and the firm. This risk can be detected by segmenting the risk perceptions of the client’s profile. The AML risk assessment process involves keeping tabs on activities wherein certain customers transact unusually less or more amounts of money. Another sign of money laundering risk is atypical transactional frequency compared to similar transaction types.
The next step is AML risk management. Correct implementation of the findings from customer risk assessment significantly helps minimize risk. The standard Customer Due Diligence procedure dictates that companies need to implement risk assessments for their customers. PEP, sanction, and adverse media screening are the main components of the customer risk assessment methodology. AML-TRACE undertakes the monitoring of all these components.
The Risk model in the application can be configured in various ways, specific to the customer type to which the model would apply. For example, the factors which contribute to a corporation’s risk score can include company ownership, PEP, country risk, length of relationship with the institution, and so on.
Rather than considering all factors to contribute equally towards a customer’s risk score, we provide due weightage to risk factors.
A risk score between 0 and 100 predicts how likely they are to be fraudulent. The closer someone’s score is to 100, the more likely they are to be a bad user. On the other hand, scores close to 0 mean that a user is highly unlikely to be a fraudster.
If any of the data related to the risk factors is not available or missing from a customer record, the risk model is designed to take an appropriate score as per the criteria of the institution.
Customer risk rating may undergo change either during periodic reviews or on an ad-hoc basis when there is any change to their risk-specific parameters. The risk model is designed to generate a revised risk score and rating when such an event is triggered.
History is available to identify the reasons for customers being rated as Very High, High, Medium, or Low and also if any customer has been overridden manually to a higher or lower risk rating over the system-generated risk score and rating.
Once a final risk score is generated, the customer is categorized as Very High, High, Medium, or Low in terms of risk levels. Based on the rating, the level of due diligence (simple or enhanced) is identified. The levels of approvals required for entering a relationship with such a customer may vary. The frequency at which the customer record has to be mandatorily reviewed will also change. Contact us to save time by automating customer screening and transaction monitoring procedures. At the same time, also meet your AML and KYC obligations on time and ensure regulatory compliance. To know more about AML-TRACE’s customer risk assessment methodology, contact us.