Customer Risk Rating Methodology (CRRM)
Navigating the intricate terrain of Anti-Money Laundering (AML) regulations requires a robust Customer Risk Rating Methodology (CRRM). We specialize in providing comprehensive CRRM solutions tailored for both legal entities and natural persons, ensuring your financial institution adheres to global compliance standards.
Similarities between Legal Entities and Natural Persons:
Both legal entities and natural persons undergo a rigorous CRRM process where anonymity, business relationships, and country-based risk factors are scrutinized. For each, we assess the involvement with high-risk third countries and the presence on sanction/embargo lists, PEP/RCA designations, and negative news that could impact risk profiles. Regularity of business interactions, type and purpose of the business relationship, and the amount of assets deposited are equally crucial in determining risk levels for both categories, ensuring a thorough due diligence process.
Differences between Legal Entities and Natural Persons:
While the foundation of risk assessment shares common threads, significant differences arise in the complexity and nature of the risk factors. Legal entities often present additional layers of risk due to their complex ownership structures, the possibility of bearer shares, and the potential for being used as vehicles for private asset management or shell companies. Conversely, natural persons are evaluated more on their personal associations, transaction patterns, and the origins of their assets.
Legal representatives and persons acting on behalf of entities are scrutinized in the case of legal entities, whereas, for natural persons, the focus shifts to their individual financial behavior and the direct risk they may pose.
Products and services, delivery channels, and transaction types also present varied risk scenarios; for legal entities, the emphasis is on the services used for corporate activities, whereas for natural persons, personal banking and investment services are of interest.
Our CRRM solutions are designed to illuminate these nuances and provide a clear pathway for compliance, tailored to the distinct needs of legal entities and natural persons within the financial sector.
Legal Entity Risk Assessment
- Business Relationship:
- Anonymity: Situations where the identities of customers or the nature of their business activities are obscured.
- Extraordinary circumstances of the Business Relationship: Unusual or atypical aspects of a business relationship that may raise risk profiles.
- Cross-border correspondence: Relationships involving foreign entities, which may increase the complexity and potential for risk due to different regulatory standards.
- High-risk third country: Business relationships with parties in countries known for higher levels of corruption or inadequate anti-money laundering controls.
- Contracting Party:
- PEP/RCA: Involvement with Politically Exposed Persons or their Relatives and Close Associates, which can raise risks of corruption.
- Sanction/embargo: Associations with entities or individuals that are subject to sanctions or embargoes.
- Negative news: Adverse media reports that could indicate reputational risks.
- Individual list: Inclusion on lists maintained by organizations or regulatory bodies, which may denote higher risk.
- Legal Representatives:
- Sanction/embargo: Legal representatives who are on sanction or embargo lists pose a legal and reputational risk to the financial institution.
- PEP/RCA: If the legal representative is a politically exposed person or closely associated with one, there is an increased risk of being exposed to bribery or corruption.
- Negative news: Adverse media findings can indicate potential past misconduct or other risks related to the legal representatives.
- Individual list: Presence on specific lists that track individuals for various reasons, such as previous offenses, can signal increased risk.
- High-risk third country: Legal representatives residing in or associated with high-risk third countries may carry additional risk due to potential for financial crime.
- Country: The country of residence or operation for the legal representative can affect the risk level, depending on the country’s regulatory environment and risk status.
- Person acting on behalf:
- Sanction/embargo: Similar to legal representatives, persons acting on behalf who are subject to sanctions or embargoes pose significant legal and compliance risks.
- PEP/RCA: Involvement with politically exposed persons or their close associates can increase the risk of corruption and requires enhanced due diligence.
- Negative news: Any adverse media reports concerning the individuals acting on behalf can lead to reputational damage and require further investigation.
- Individual list: Being on an individual list suggests that the person has been flagged for previous issues, which can be a cause for concern.
- High-risk third country: Connections to high-risk third countries may introduce additional risks due to potential exposure to money laundering or terrorist financing activities.
- Country: The country in which the person acting on behalf operates or resides can influence the risk assessment based on the country’s risk profile.
- Ultimate Beneficial Owner:
- Ownership structure: The complexity or transparency of the ownership structure can impact risk, with more complex arrangements often posing higher risk.
- Source of funds, wealth and income: The source of the beneficial owner’s wealth can affect the risk profile, especially if the source is unclear or linked to high-risk activities.
- Products/Services:
- Private banking/ Wealth management: Products or services tailored for high net worth individuals might require additional due diligence due to potential for complex financial activities.
- Anonymity: Certain products that can be used to shield identities raise risk levels.
- Delivery Channel:
- Anonymity: Delivery channels that allow for anonymous transactions can be higher risk.
- New distribution mechanisms: Innovative ways of delivering products/services that might not be fully covered by existing regulatory frameworks.
- Transactions:
- Asset transfers/transactions that could promote anonymity: Transactions that enable the concealment of the asset owner’s identity.
- Receipt of payments from unknown or unaffiliated third parties: These can signal money laundering or other illicit financial activities.
- Particularly complex or unusually large transactions: These may be indicative of attempts to obfuscate the movement of funds.
- Bank details and account:
- Assessment of the risk associated with the banking details and account information of the client, which could include the review of the bank’s country of origin, any sanctions or negative news associated with the bank, and the bank’s adherence to AML and KYC regulations.
Natural Person Risk Assessment
- Business Relationship:
- Anonymity: Engagements where the individual’s identity is not fully disclosed or verified.
- Extraordinary circumstances: Unusual aspects or activities within the business relationship that deviate from normal procedures or expectations.
- High-risk third country: Relationships connected to countries known for high levels of corruption or inadequate anti-money laundering controls.
- Country: The risk associated with the country of residence or operation of the individual.
- Contracting Party:
- PEP/RCA: Involvement with politically exposed persons or their close associates, which could imply increased scrutiny due to corruption risks.
- Sanction/embargo: Associations with individuals who are subject to international sanctions or embargoes.
- Negative news: Adverse media reports that could reflect potential risks associated with the individual.
- Individual list: Listings on specific databases that might indicate past financial crimes or regulatory issues.
- Legal Representatives:
- Sanction/embargo: Legal representatives who are on sanction lists pose a high compliance and reputational risk.
- PEP/RCA: The risk of corruption and money laundering is higher if the legal representative is politically exposed or closely associated with someone who is.
- Person acting on behalf (of the Contracting Party):
- Sanction/embargo: Checks if the person acting on behalf is subject to any international sanctions.
- Negative news: Scrutiny of any adverse media coverage that might impact the risk profile of the contracting party.
- Ultimate Beneficial Owner:
- PEP/RCA: Evaluation for exposure to political corruption risks if the ultimate beneficial owner is a politically exposed person.
- Source of funds, wealth and income: Assessment of the source of wealth or assets to ensure they are not derived from illicit activities.
- Products/Services:
- Private banking/ Wealth management: Tailored financial services for high-net-worth individuals often require additional checks due to their complexity and higher risk of financial crimes.
- Anonymity: Services that could be used to hide an individual’s identity or source of funds.
- Delivery Channel:
- Anonymity: The use of delivery channels that allow transactions to be conducted anonymously increases the risk.
- Business Relationships or transactions without personal contacts: Absence of face-to-face interactions can complicate the verification process and increase risk.
- Transactions:
- Asset transfers/transactions that could promote anonymity: Transactions that hinder the clear identification of the parties involved.
- Receipt of payments from unknown or unaffiliated third parties: Payments from non-related parties can indicate money laundering or other illicit activities.
- Bank details and account:
- Sanction/embargo: Review of the individual’s banking relationships for any connections to sanctioned entities or countries.
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