How a Bank Risk Assesses High-Risk Customers

A bank’s risk assessment process is based on several different factors. Some of these factors are more important than others. Some factors include the type of business the customer runs and the location of the customer. Other factors include actual or anticipated account activity. A bank’s risk assessment process can help it better target products to different risk cohorts.

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Performing a thorough customer due diligence check is essential for identifying high-risk customers. This step should be done at least quarterly. Otherwise, fraud and AML teams will not know when a high-risk customer transacts on their platform. Moreover, a bank’s risk assessment process may incorrectly classify a low-risk customer as high-risk. For more information on KYC and its importance, try visiting a site like w2globaldata.com/regulatory-compliance-solutions-and-software/know-your-customer/

In order to identify high-risk customers, banks need to develop effective risk-rating models. The most effective risk-rating models incorporate several best practices, including simplification of model architecture, data quality, and statistical analysis to augment expert judgement. They must also continuously update customer profiles and behaviour, as well as make use of network science and machine learning techniques.

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In addition to these three steps, banks must also perform enhanced due diligence on certain customers. This is required under anti-money laundering laws. The risk assessment process begins by understanding the customer’s activities. Once you have a good understanding of a customer, you can then determine whether they are high-risk or low-risk.