Risk Assessment
What is the difference between high-risk and low-risk customers?
High-risk customers pose a greater risk for involvement in illegal activity such as money laundering or terrorist financing, while low-risk customers have a lower likelihood of such involvement.
What is the role of external data sources in KYC risk assessment?
External data sources can be used to supplement internal data and help identify potential risks. These sources may include public records, watchlists, and other third-party data sources.
What is the importance of an AML/KYC risk assessment policy?
AML/KYC risk assessment policy outlines the organization's approach to assessing and mitigating risks associated with money laundering and terrorist financing. It is important as it sets the framework for the organisation's risk management activities.
What is geographic risk and how is it assessed?
Geographic risk refers to risks associated with a particular country or region being used to facilitate money laundering or terrorist financing. It is assessed by evaluating factors such as the country's political stability, regulatory framework, and level of corruption.
What is a risk assessment report and what should it include?
A risk assessment report is a document that outlines the results of an AML/KYC risk assessment. It should include information on the identified risks, the potential impact of those risks, and recommended mitigation strategies.
What is enhanced due diligence (EDD)?
Enhanced due diligence (EDD) is a more thorough process of verifying a customer's identity and assessing the level of risk posed by the customer.
What is the role of the regulator in KYC risk assessment?
Regulators set guidelines and requirements for AML/KYC risk assessment, and may conduct their own assessments to ensure compliance with applicable laws and regulations.
How often should AML/KYC risk assessments be conducted?
AML/KYC risk assessments should be conducted on a regular, ongoing basis, and reviewed and updated as necessary.
What is product risk and how is it assessed?
Product risk refers to the risk associated with a particular financial product or service being used to facilitate money laundering or terrorist financing. It is assessed by evaluating the features of the product, such as its complexity, accessibility, and anonymity.
What is a high-risk customer and how should they be managed in AML/KYC risk assessment?
A high-risk customer is a customer who poses a higher risk for involvement in financial crimes such as money laundering or terrorist financing. They should be managed through enhanced due diligence and transaction monitoring to mitigate risk.
What is the risk-based approach (RBA)?
The risk-based approach (RBA) is a method of assessing and managing the risks associated with a financial institution's customers, products, and services. It involves tailoring measures to the level of risk posed, rather than taking a one-size-fits-all approach.
What is the difference between an internal and external AML/KYC risk assessment?
An internal AML/KYC risk assessment is conducted by the organization itself, while an external AML/KYC risk assessment is conducted by a third-party risk assessment service.
What is the importance of ongoing review and updates in AML/KYC risk assessment?
Ongoing review and updates are important in AML/KYC risk assessment as they ensure that risk management measures remain relevant and effective in preventing and detecting money laundering and terrorist financing. It also ensures that the financial institution is in compliance with applicable regulations and guidelines.
What are the penalties for money laundering and terrorist financing?
The penalties for money laundering and terrorist financing include fines, imprisonment, and asset forfeiture.
What are the four categories of AML/KYC risks?
The four categories of AML/KYC risks are customer risk, product risk, geographic risk, and transaction risk.
What is the customer risk rating (CRR) and how is it determined?
The customer risk rating (CRR) is a score assigned to a customer to assess the level of risk they pose. It's determined by evaluating factors such as the customer's background, the nature of their business, and the types of transactions.
What is the difference between a risk assessment and a risk-based approach?
A risk-based approach involves tailoring measures to the level of risk posed by a particular customer, product, or service, which can only be determined through a risk assessment.
What is the purpose of AML/KYC risk assessment?
The purpose of AML/KYC risk assessment is to identify and assess the risks of money laundering and terrorist financing associated with a particular customer, product, service, or geographic location.
What is the importance of transaction monitoring in AML/KYC risk assessment?
Transaction monitoring is important in AML/KYC risk assessment as it allows financial institutions to detect suspicious activity and respond in a timely manner. It helps manage risk by identifying and preventing money laundering and terrorist financing.
What is transaction risk and how is it assessed?
Transaction risk refers to the risk associated with a particular transaction being used to facilitate money laundering or terrorist financing. It is assessed by evaluating factors such as the transaction amount, origin and destination of funds, and purpose of the transaction.
How is enhanced due diligence (EDD) different from standard KYC/CDD?
Enhanced due diligence (EDD) is a more thorough process of verifying a customer's identity and assessing the level of risk they pose. It's used for higher-risk customers or transactions, and involves deeper investigations into an individual's background, source of wealth, and other relevant information.
What is the role of controls in AML/KYC risk assessment?
Controls are put in place to mitigate the risks identified in the AML/KYC risk assessment process. They may include customer due diligence procedures, transaction monitoring, and ongoing monitoring of customer activity.
What is the difference between inherent risk and residual risk?
Inherent risk is the risk associated with a particular customer, product, or service without any actions to mitigate the risk. Residual risk is the risk that remains after controls and mitigation strategies have been implemented.
What is a risk appetite statement and why is it important in AML/KYC risk assessment?
A risk appetite statement is a document that outlines an organization's tolerance for different types of risk. It is important in AML/KYC risk assessment as it helps establish the appropriate level of due diligence and other controls for different types of risks.
What is the role of data analytics in AML/KYC risk assessment?
Data analytics can be used to identify patterns and trends in customer behavior, transactions, and other data that may indicate potential money laundering or terrorist financing risks.