KYC Risk Rating as a Tool to Filter and Group Customers

AML and KYC procedures don’t always show exact results of whether a client is a financial offender, but rather rate customer risk level

KYC risk rating is formed based on the customer data gathered by financial institutions. The company evaluates each client for possible participation in financial crimes and assigns a certain rating to it. Depending upon difficulty, there are 3 standard types of KYC risk ratings.

  • Low Risk (SDD — Standard due Diligence)

Standard due diligence is the lowest level of verification. Companies use it when there is little chance or risk that customers engage in money laundering or terrorist financing.

  • Medium Risk (CDD — Customer due Diligence)

Customer due diligence is a kind of basic analysis of the client. The company verifies a customer’s identity to a sufficient level of confidence.

  • High Risk (EDD — Enhanced due Diligence)

Enhanced due Diligence means increased control over customers who are more likely to participate in financial crimes due to their nature of business or operations.

KYC risk rating ensures compliance with global regulations such as AML, KYC and CTF/CFT standards. Each client passes several levels of verification and may be required to submit additional documents such as a source of income, confirmation of registration address, etc.). If the risk rating is high, the company will constantly and carefully track customer transactions. If the risk rating is low, the company will still control the client but not as intensely.

To protect your own company from corruption and money laundering, it is extremely important to implement a KYC risk assessment for all your customers—the most reliable method to determine which customers assume a higher risk for your company, allowing to avoid liability.

The KYC risk rating can be formed manually or automatically. And although the result cannot be absolutely accurate in any case, big companies with large amounts of information require automation. Here at Sumsub, our advanced technology provides each client with KYC risk rating, the result as accurate as it can get, with the access to the manually re-check the user.

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