The use of customer profiling in compliance reviews. A customer profile is a set of traits and behaviors that are shared by a subset of a company’s current client base. Creating client profiles necessitates research on buyer psychology and purchase patterns. Customers’ risk profiles are used by businesses to develop extensive, semi-fictional descriptions for AML/KYC decisions.

The Use Customer Profiling In Compliance Reviews

Organizations, people, or both can have customer profiles. Customer profiles may vary over time for a variety of reasons, including address changes, changes in company activity, changes in jurisdiction, and so on. Customers may contact themselves, or the organization may contact them based on the transaction alert or any outside information obtained about them.

The adoption of a customer risk profile is required for independent compliance evaluations conducted by the compliance team or the compliance function (or CF) of the firm. The monitoring and review mechanism is standardized, relevant, and consistent enough to allow the compliance team to aggregate the risk profile elements of each customer, particularly those in the high-risk category, to assess regulatory compliance status and identify patterns in regulatory compliance controls that could indicate gaps or weaknesses. 

Verification of the client risk profile generated prior to onboarding should be part of the compliance control review process. This is to guarantee that client profiles are up to date and based on the most recent information available. Checking the identifying information collected from clients when they opened their accounts, as well as updated KYCs based on changes in the customers’ company profiles, are all part of compliance assessments. The compliance team verifies that the account opening team has contacted the required customers to gather and validate their current business and risk profiles for each client whose profiles are updated after onboarding.

Compliance Team

The compliance team carries out independent compliance reviews based on transaction samples of material and high-risk customers. The compliance reviews should, at a minimum, cover the areas like awareness of key regulatory requirements by the employees, working in different departments, and the knowledge of the account opening team regarding their customers and their business profiles. 

The CCO should decide the content to be addressed and the frequency of regular compliance reports, which must be prepared by the compliance team after performing compliance reviews. Compliance reports are reviewed by the CCO, and significant compliance issues and breaches are shared with Management Compliance Committee (or MCC) and the Board Compliance Committee (or BCC) for review and appropriate feedback.

These reports should be in a manner and formats that allow the MCC and BCC to clearly understand the regulatory compliance status and risks to which the organization is exposed and the adequacy of key regulatory compliance controls to manage those risks. 

Compliance Reviews

The compliance reviews of ML/TF risks focus on the high-risk category customers, such as politically exposed persons (or PEPs), NGOs, charitable organizations, and correspondent banking accounts. For these high-risk category customers, the compliance reviews are performed to identify instances where the profiles of the customers are not updated for long or based on the generation of an alert.

Detailed scrutiny and monitoring are performed for all high-risk customers because, as per AML/KYC regulatory requirements, all high-risk category customers are subject to ongoing monitoring to identify any potential or existing suspicious activity or money laundering risks. Therefore, it is important that the profiles of each customer are updated periodically, and all high-risk category customers are scrutinized and monitored by the compliance team. 

Employees and staff of the company from any department will immediately refer any unusual or potentially suspicious activity upon identification or detection to the AML Officer of the company. Investigations may also be initiated by AML Officer in response to internal or external events or referrals from existing business or functional processes, including any law enforcement and/or regulatory inquiries.

Employees and staff of the company are responsible for providing complete, accurate, and prompt responses to any queries in support of AML investigations. Timely implementation of any change resulting from an AML investigation is the responsibility of the impacted businesses and functions.

Final Thoughts

A customer profile is a collection of characteristics and behaviors that are shared by a subset of a company’s existing customer base. Creating customer profiles entails researching buyer psychology and purchasing habits. Companies use this data to generate detailed, semi-fictional descriptions that help them make business decisions. These are the descriptions of the customer profiles. Customer profiles can be applied to businesses, individuals, or both.