What is Customer Risk Assessment?

What is Customer Risk Assessment?

Customer risk assessment is a series of evaluations made when a new business relationship or transaction is to be initiated with the customer. It is a critical process for a more accurate analysis of the potential risks that the customer may create. In order to establish a general customer risk, the questions attached to the customer participation forms need to be answered. These questions should be informative about the risk situation of the customers.

Customer Risk Factors

According to Prevention of Money Laundering and Funding of Terrorism Regulation, “Risk factors include those relating to customers, countries or geographical areas, product, services, transactions, and delivery channels risk factors.”. Customer risk factors are as follows in general terms:

  • Customer or Entity: It is the evaluation made by examining who the customer is and the work they have done.
  • Geography: It is evaluated by looking at the country of residence of the customer and the location of the people with whom he is connected. This process is a very important step.
  • Product/Services: Identifying transactions with a higher risk of money laundering is critical to understanding customer risk. For example, some transactions that are not transparent (names or other important information being anonymous) are red flags.
  • Delivery Channel: There may be many doubts when providing certain products or services. Detection of these is also very effective in the risk profile of the customer.
  • Industry: In some sectors, money laundering may be easier and more profitable than in other sectors. Industries such as finance and banking, insurance, real estate, payment systems, or foreign exchange are examples. Customers in these sectors should be examined more carefully.

Customer Risk Levels

 Customer risks are divided into four levels among themselves:

  • Low: Customers whose identity and other requested information are easily identified. 
  • Medium: Customers who are more likely to pose a risk than the average.
  • High: The level of risk that requires Customer Due Diligence.
  • Prohibited: It is the customer profile that institutions should not make any agreements with. This indicates that the customer has many suspicious sources and risky transactions have occurred.

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