Customer risk profiling is essential because the customer presents the greatest risks to a business entity unwittingly facilitating money laundering, terrorist financing or any other type of financial crime. For these reasons, the customer risk assessment, which is sometimes referred to as customer risk profiling, are essential components of an anti-money laundering compliance framework.
If the customer has no intention of criminal activity, obviously the business has greater protection against an AML/CFT compliance breach. However, for a business to have informed data to make decisions on customer risks, they need to understand the customer risk profile.
Customer risk profiles may detect that an elderly person is operating a business account on behalf of their son, daughter, niece of nephew. The underlying third party to the business relationship might be connected to criminal activity.
In order to avoid regulatory action for failing to operate with adequate provisions of customer risk profiling, a business must be able to demonstrate a sound risk profiling methodology.
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