Customers and the products supplied by the company are subject to various dangers. To classify the risk into larger money laundering or ML and Terrorist financing or TF concerns, the methods of supplying the products and services are also incorporated.
The huge quantity, sorts, and locations of consumers for whom accounts are to be established give birth to these broader risk categories.
Compliance to AML/KYC Standards
For continued due diligence and monitoring, the risks associated with the customers must be recognized and recorded. The organization’s account opening team and anti money laundering or AML team must comply with AML and know your customer or KYC regulatory standards, which require firms to identify and document customer-related risk factors and categories.
Board of Directors Risked-Based Strategy
AML/CFT Regulations apply the regulatory framework for AML, requiring firms to focus on the areas where linked ML/TF risks are relatively significant to allocate resources most efficiently. As a result, the Board of Directors and management must build an enabling environment for the effective execution of a risk-based strategy that considers the organization’s internal rules, processes, and risk criteria.
Risk Categories During Onboarding
At the onboarding step, organizations profile each new client based on their judgment and the information collected via the customer due diligence or CDD and KYC procedure. Customer risk, jurisdiction risk, product risk, and channel risk are the risk categories that an organization confronts due to the large number and varieties of customers, goods, services, and channels utilized to offer services to the customers. These risk categories are discussed in detail in the below sections.
Risk categories are the classification of risks based on the organization’s business activities, and they provide a structured overview of the underlying and potential risks that they face. Strategic, financial, operational, people, regulatory, and financial risk classifications are the most commonly used and the customer, jurisdiction, product and channel risk.