How a KYC risk rating can help your company?

If you’re working in the financial business you obviously know what KYC means KYC means Know Your Customer. This is an important process that allows financial institutions and any business to verify the reputation of their prospects and customers.

This type of process is extremely important to make sure that the parties you’re working with. It is also a way to reduce high-risk prospects and terrorist financing. Terrorist groups need money to sustain themselves and to carry out terrorist acts. Terrorist financing encompasses the means and methods used by terrorist organizations to finance their activities.  Institutions gather as much data as they can about their customers, and they then compile this into a portfolio.

Medium Risk (CDD – Customer due diligence) or CDD is the key part of anti-money laundering requirements. 

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What is KYC Risk Rating? It’s not for financial institutions only!

KYC risk rating is a way to calculate the business risk. Each question will find an answer with a number of points. By adding or multiplying those points, you will measure the prospect risk level. This process is obviously used for politically exposed persons, dangerous customer activity, transaction monitoring and electronic identity verification. We have been working also with ScoreChain affect that measured reputation of digital wallets.

Once the portfolio is completed, they closely analyze the information that they have obtained, and they determine the KYC risk rating of that specific client. 

InvestGlass digital onboarding forms are fully customizable to adapt your process with your KYC compliance regulations and any global regulations. We work with your legal department or external consultants to help you adapt those forms to your diligence program.

With the new European directive on anti-money laundering, most companies should check financial transactions above a threshold of €10,000. A risk-based approach will vary based on your industry but we believe that anti-money laundering screening will be a common process in most industries.

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How KYC Risk Rating Works

Anyone in your company from your senior management to fresh interns should understand financial crime basics. Financial institutions are required to closely monitor clients’ activities. Obviously, it’s not that easy to measure ongoing monitoring, and risk rating is a smart way to prevent a discriminative approach. Risk factors should be identified with a scoring. Each country has its own risk assessment and KYC risk rating. A deep understanding of the risk identified might not be needed by all your colleagues. Therefore we suggest you digitalize as much as possible with InvestGlass. The customers’ risk profile will then be stored directly into InvestGlass CRM. If you’re using a third-party solution such as ARDIS POLIXIS, the CRM will also store automated risk assessments by this third-party contact. Customer data and then stored into a banking grade CRM.

KYC Risk Rating: Automation vs. Manual – make customer due diligence affordable

Financial crime is not only about the reputation of your customer. Financial crime it’s also enhanced due diligence on transactions. KYC risk rating allows for financial institutions and your business to quickly and efficiently lower risk. Only automation can filter risk for vast amounts of data.

The entire process should be as automated as possible. Having no tomato process it’s also a way to reduce the financial action task force. I remember Bank telling me that they included assets in the management by X10 and their compliance staff the same. Spotting abnormal transactions is quite easy as the InvestGlass portfolio management tool can measure abnormal transactions.

If a client’s transactions begin to diverge significantly from the institution’s predictions, the institution will be notified and they will be able to further analyze the transactions for suspicious behavior.

The portfolio management monitoring looks into financial institution feeds collected and processes the information with threshold filtering. Thanks to this collection of feeds, Investglass can automate customer screening. Artificial intelligence automatically features customers by high-risk, medium risk, low risk. All your customers are automatically reviewed by the machine. Based on a routine that you can set up on a monthly or annual basis, clients’ accounts are closely monitored. Obviously, there might be some money launderers that will not be visible. Therefore, a randomized manual check will always be priceless to make sure that automated KYC procedures are effective.

KYC Reasonable Reassurance and customer risk

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Compliance officers and ledges straighter’s will always push for a deeper understanding of national governments intentions. Checking accounts should be seen as a cost and if a KYC rating is too complex the prospect, nowadays, would obviously know that it’s going to be complex to proceed with an account opening. Diligence measures will be applied to what cost?

Financial crimes will definitely be spotted as easily as a politically exposed person. Understanding the entire client portfolio and transaction will also be easy to access. But there will be some risk levels too difficult to spot. And your business should quickly reject high-risk customers to reduce the cost to reporting entities. This can be an ongoing process, as existing customers have the potential to transition into higher-risk categories over time; in that context, conducting periodic due diligence assessments on existing customers can be beneficial. 

Making Predictions with KYC Risk Rating and money laundering

KYC risk rating once properly used with InvestGlass tour will help you to predict prospects’ quality. Financial crimes-related prospects Will automatically reach your maximum risk ratings thresholds. And then compliance professionals will help you to find an average risk tolerance that will be suitable.

Financial institutions will therefore future customer risk based on the origin of the assets and risk factors that are unusual or suspicious will automatically receive a higher risk. As you’re collecting customer data, enhanced due diligence will be possible and you will adapt your digital onboarding forms.

The transaction monitoring as well as the digital onboarding forms have configurable rules engine to monitor patterns of suspicious behavior. InvestGlass compliance solution is made for early-stage companies and large institutions.