BSA: Assessing Customer Risk
It sounds so easy when the regulators say it: assess the risk your customers present. Pay closest attention to the high risk customers. The problem is figuring out exactly what this means and how to do it. And once all that is figured out, the question becomes what to do next - how should all this risk assessment be put to use?
Fortunately, the new BSA examination procedures provide some excellent guidance on how to proceed. Of course, the guidance is developed to guide examiners in evaluating what you have done, so there are a few pieces that the examination procedures don't include - like how to get started.
In this issue, we take a crack at getting started. We look at the Quantity of Risk Matrix set out in Appendix J to the new examination procedures and turn those issues into questions you should ask about customers. This approach looks at common indicators of risk, some based on customer behavior, some on the situation.
We have assigned some risk levels to each customer characteristic or activity. These are approximate. Much activity that is generally considered high risk to the institution is in fact legitimate banking activity. The designation of high risk means that we have to pay close attention to these activities, but not that we assume it to be suspicious.
On the other hand, the fact that a situation is usually considered low risk does not mean that you should pay no attention. There are exceptions to everything. The goal is to focus attention where it is most needed and gets the best results. But you cannot totally ignore the low risk situations.
Where funds transfers are involved, it is particularly important to evaluate how those transfers relate to the customer's business. Expected transfers are appropriate, but those that don't have a clear relationship to the customer's business should be carefully reviewed.
BSA: Assessing Customer Risk Chart
Copyright © 2005 Compliance Action. Originally appeared in Compliance Action, Vol. 10, No. 13, 11/05
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