Customer Risk Profiling

Customer profiling is an essential component of an anti-money laundering compliance framework. This is because the customer presents the greatest risk to a business unwittingly facilitating money laundering, terrorist financing or any other type of financial crime. For these reasons, the customer risk assessment, which is sometimes referred to as customer risk profiling, are essential for an anti-money laundering compliance framework.

If the customer has no intention of criminal activity, obviously the business has greater protection against an AML/CFT compliance breach. However, in order for a business to have informed data to make decisions when conducting ongoing monitoring, they need to understand the vulnerabilities that the customer presents.

A customer risk profile assists the decision making process to determine if the account activity is expected or unusual. The customer profile incorporates the individual characteristics of the customer, as well as the nature and purpose of their business relationship.

Customer profiling may detect that a elderly person is operating a business account on behalf of a family member. That aspect should be identified at time of onboarding. The business with responsibilities to AML/CFT compliance should understand why the account is being operated on behalf of a third party. Ongoing monitoring may detect large value transactions going into the account and within a short-time frame, transferred out of the account under an international wire transfer. This type of circumstance should result in a ‘red flag’ alert requiring further analysis to determine if the activity is unusual.

For jurisdictions operating under legislation developed under the principles of the Risk Based Approach, regulatory expectation cannot be met unless customer risk profiling is implemented and adequate.  Without knowing the customer’s purpose of the account and background of the individual characteristics of the customer, it is unlikely AML/CFT compliance has been met.

In order to avoid regulatory action for failing to operate with adequate provisions of customer risk profiling, a business must be able to demonstrate a sound risk profiling methodology. The profiling must be flexible for updates and be linked to transaction monitoring analysis. 

A customer risk register should be able to provide information on the proportion of customers that fall into differing categories of risks. This would be a basic requirement in order to understand what customers present higher risk and therefore those customers requiring a greater level of ongoing monitoring.

Risk profiling is AML360’s forté. We are the leaders in managing risk and compliance for the complete anti-money laundering framework.

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