Review of past risk scores for AML and CDD teams

Corporate Anti-Money Laundering (AML) and Customer Due Diligence (CDD) teams use automated risk analysis tools to improve operational efficiency and screen customers and suppliers that may pose an unacceptable risk to the institution. But if potentially risky customers are routinely rejected simply because an automated system has flagged them, or because it seems more efficient to avoid them, AML/CDD teams can inadvertently miss opportunities to develop great relationships. commercial.

Why? Because automated screening programs flag customers as high risk for many different reasons. Depending on how the Know Your Customer (KYC) risk parameters have been configured, a system may give too much weight to factors that are not relevant or incorrectly classify some low risk customers as high risk for reasons that do not pose a legitimate threat.

In any case, a high risk score alone does not provide the necessary context to understand a client’s true risk. If the AML/CDD teams do not take the time to investigate Why a customer has been reported, and if the reasons for reporting them warrant denial of boarding, there is a very real possibility that valid customers will be denied for no good reason.

Use risk scores to drill down

There are hundreds of reasons why a client may receive an unfavorable high risk score. Perhaps the company was flagged because they were involved in a lawsuit that has already been resolved, in their favor. Or maybe the business has changed ownership and the system is really flagging the previous owners. Perhaps the client has already been the victim of identity theft. Or their industry has been wrongly classified as a money laundering risk. Or the business was mistakenly associated with another high-risk business with a similar name.

Whatever the reason, the fact is that if AML/CDD teams rely too much on risk scores and don’t make the effort to better understand what is causing the risk, the institution can undermine itself. by adopting false notions of safety and efficiency. As a best practice, KYC protocols should be overlaid so that teams can review reported accounts to determine if the highlighted factors warrant further investigation. Additionally, the overall effectiveness of an automated risk assessment tool should, in theory, give AML/CDD teams enough time to conduct more in-depth investigations of high-risk customers.

Study: Automation does more than save time

To test this theory, Thomson Reuters recently commissioned Forrester Research to conduct an independent study of its CLEAR ID Confirm and Risk Inform solutions for due diligence and fraud prevention. Forrester interviewed several Thomson Reuters customers to find out what the quantifiable benefits of using CLEAR ID Confirm and Risk Inform were for their respective organizations. They told Forrester that using these tools not only freed up more time for investigations, but also made the investigations themselves more effective and efficient by gathering detailed information about the risks of high-risk accounts in a comprehensive report that is easy to understand and interpret.

According to the Forrester report, the two CLEAR solutions made general risk assessments 40% faster, reducing the time employees had to spend on routine risk assessments. These programs also made it 20% easier to investigate vendors and other customers labeled as high-risk, assess the factors that increased their risk scores, and determine if those factors were important enough to avoid taking them into account. account.

One user said, “CLEAR allows us to pay more attention to high-risk accounts that we can still approve and do business with. CLEAR allows us to deepen our knowledge and, for example, to know the exact legal issues in the client’s context. Additionally, this user appreciated the transparency of the reports provided, saying, “The information and where it comes from is pretty self-explanatory.”

In such cases, CLEAR users used a comprehensive report tailored to their KYC risk threshold for different types of businesses. Interviewees said that the underlying data for each report was detailed, up-to-date and accurate and that after reading the reports, the decision whether or not to onboard a new client was relatively obvious. Respondents also appreciated the transparency of the reports regarding where the data came from and the ease with which it was possible to identify the data that mattered most to them, especially when it related to criminal history and legal matters.

Understand your customer’s story

No risk assessment tool is perfect, and how an institution chooses to use them is an important consideration that is sometimes overlooked. Relying too heavily on risk scores to make integration decisions opens up the risk of allowing potentially important partnerships to slip through the cracks and go to a competitor. Every customer or supplier has a unique story, after all, and taking the time to understand that story can both strengthen anti-money laundering efforts and open up the possibility of building better business relationships that can pay dividends. important dividends in the future.

Find out how your AML or CDD team can benefit from implementing an automated risk assessment tool.

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