Levels of risk

  • Prohibited: where the risk is so high, no dealings of this type will be performed by the company. Examples include shell bank customers, or sanctioned geographic regions e.g. Sudan or Iran

  • High Risk: significant risk exists, so enhanced controls are required e.g. enhanced monitoring and customer due diligence. Countries noted for drug trafficking, or corruption for example might be high risks, as might customers who are PEPs, and products such as correspondent and private banking.

  • Medium risk: more than just a standard risk of money laundering, and so merits additional controls.

  • Low (or standard) risk: normal business rules apply, often domestic customers and FATF member countries are considered low risk.

  • The risk of the geography, customer type, and products/services are each assigned a risk score e.g. 1-10 with 10 being high risk. These could then be aggregated, or weighted then aggregated. Certain combinations could also be assigned a higher significance if that leads to a higher perception of risk. The risk ranking should be re-evaluated periodically.

  • Note that any ‘prohibited’ items would cause the relationship to be rejected.

  • High risk relationships should warrant more attention, so the organisation should be careful to ensure that there is sufficient oversight if there are a lot of high risk customers as a proportion.

Next Topic: Geographical Location

Previous Topic: Assessing Risk and Developing a Risk Scoring Model

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