KYC-AML risk assessment

When it comes to onboarding individual or corporate clients, risk assessment is essential. Performing Know Your Customer (KYC) and Anti-Money Laundering (AML) risk assessment checks help ensure compliance, deter fraud and provide insights into your new clients and their activities.

Risk assessments are a fundamental part of a risk-based approach and help identify potential issues, understand the risk of dealing with a customer, and determine what measures are necessary to counter the threat. If the risk is not in line with company policies, rejecting the application before opening an account might be advisable.

Practical risk assessment tools let you tailor the information gathering process to your needs and gain risk assessment insights specific to your business. As each jurisdiction and customer poses different risk considerations, the tools should enable automated workflows to handle different scenarios quickly. While you must protect your business, you also want to ensure the onboarding process is relatively quick and seamless.

The importance of risk assessment

You wouldn’t go into business with just anyone, and nowadays, you don’t have to rely on a hunch to decide who’s a little fishy and who’s a safe bet. By having a risk assessment system, you can better understand who your clients are and dictate the parameters of how you wish to serve them. Mitigating potential risks that may harm your business before becoming a customer is the safest strategy.

But just because a client is high-risk doesn’t mean they’re off limits, and you shouldn’t onboard them. It just means they may require special attention from your end. A system to help you actively manage risk assessment when onboarding can help you comply with KYC/AML regulations and improve your services.

Traditionally, customer risk levels are divided into four buckets that will determine the nature of your relationship with them and how you should manage them:

  • Low: A customer whose identity and information are easily verifiable. They pose a low amount of risk to unwanted or illegal activity.
  • Medium: A customer who may pose a higher risk than the average customer. This customer may require further due diligence and monitoring.
  • High: A customer requiring considerable due diligence needs close monitoring.
  • Prohibited: A customer profile that strongly indicates suspicious behavior and risky transactions have occurred in the past. Avoiding these customers helps prevent your bank or a financial institution from being implicated.

It is not a calculated risk if you haven’t calculated it. ― Naved Abdali, Author of INVESTING — Hopes, Hypes, & Heartbreaks.

Performing KYC/AML risk assessments at onboarding

Identity verification can provide numerous layers of data to better inform your risk management procedures; you can start conducting your risk assessments during onboarding before any official AML checks even begin.

With an effective solution, you can build and customize risk models that directly connect to your digital onboarding process. You’ll receive a client’s risk score once they reach the end of the onboarding flow by inputting rules, values and thresholds. You can have different risk categories to choose from, including a customer’s place of residence, financial background, employment history and services you may want to consider offering them.

Adding in more identity data or additional identification procedures helps create a more robust profile to base your onboarding decisions. For example, adding an ID document verification on top of a digital identity verification process provides much more complexity for a criminal to overcome.

You can set rule conditions. If these conditions are triggered, your client will receive an extra point on their risk assessment score. For example, suppose your business considers onboarding clients from Yemen a higher risk than England. In that case, you can set the system to identify these data points when onboarding, automatically adding them to their risk score.

You can set up as many customized rule conditions as you want, giving you a comprehensive risk assessment that provides a thorough summary of your clients’ risk rating, so you know how to move forward confidently. You can adapt rules to assess clients across several branches and countries, catering to specific needs. It allows all data and risk variables to be accessible to all relevant stakeholders, meaning your teams can be more informed and efficient and paves the way for risk-based decisions with greater assurance.

Risk assessments don’t need to be risky. With modern, robust and adaptable onboarding solutions, you can better understand who you are going into business with. You can build custom risk assessment models based on the conditions most important to your company. And you can make risk-based decisions in real-time while onboarding your clients.

Your digital onboarding experience can be fast and straightforward for customers while providing compliance, risk and security professionals with a highly customizable KYC/AML risk assessment tool. In the digital world, effective identity verification should deliver a friendly onboarding for good customers and appropriate risk assessment measures.