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#1075233 - 11/03/08 04:00 PM
Determining High Risk Customers
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Platinum Poster
Joined: Aug 2008
Posts: 555
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I have several different samples regarding determining your high risk customers. Some show any type of high-risk business, such as check cashers, MSB's, restaurants, etc. should be on your high risk list. Others put them as moderate risk. Some models only have a high or a low to choose from. I've had an examiner tell me that not all MSB's would have to be considered high risk. What does everybody else do? I'm basically talking about what risk factor to assign the account at the time of account opening. How do you determine that?
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#1075283 - 11/03/08 04:28 PM
Re: Determining High Risk Customers
Compliance Lover
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Diamond Poster
Joined: Mar 2007
Posts: 2,108
gone fishin'
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We use a point system.
They get 5 points for Foreign Wires 3 points for being out of our servicing area ... etc ... etc ...
Then I have a provision in my policy that states we may upgrade or downgrade a risk at any time, based on the activity.
Not all of my MSBs are High and certaintly NONE of my restaurants are high risk ...
_________________________
My opinions are my own, and not that of my employer.
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#1075304 - 11/03/08 04:48 PM
Re: Determining High Risk Customers
WonderWoman
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Platinum Poster
Joined: Aug 2008
Posts: 555
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But how do you rate them when the are a brand new account? Do you use your same system, just based on what is expected acvitity? Then adjust it later if needed? Do you use Low/Moderate/High tied to your numbers?
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#1075416 - 11/03/08 06:13 PM
Re: Determining High Risk Customers
Compliance Lover
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Diamond Poster
Joined: Mar 2007
Posts: 2,108
gone fishin'
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It's based on expected activity ...
PM me your email & I can chat with you more about it ...
_________________________
My opinions are my own, and not that of my employer.
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#1076074 - 11/04/08 06:28 PM
Re: Determining High Risk Customers
WonderWoman
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Platinum Poster
Joined: Aug 2006
Posts: 516
Ohio
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I dump all of my potentially high risk businesses into one of two categories:
1) Moderate Risk - Business included in a potentially high risk category, yet is not classified as Potentially High Risk due to daily monitoring; or
2) High Risk - Business included in a potentially high risk category, classified as Potentially High Risk, and due to daily monitoring does not qualify for a reduced rating.
There are other categories as well, but these are the two that relate to the business types you're referring to (NBFI's, cash intensive businesses, professional service providers, etc.). The CSR's code all accounts at account opening.
I recently had an independent consultant recommend that I categorize all of these as high risk, but my Fed examiner disagreed. He liked that I had identified them but agreed that just because they're labled as potentially high risk, doesn't mean that they are in fact high risk.
_________________________
Don't make me say, "I told you so!" Sincerely, your friendly Compliance Officer.
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#1076470 - 11/05/08 12:33 AM
Re: Determining High Risk Customers
Kathleen O. Blanchard
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Diamond Poster
Joined: Nov 2000
Posts: 1,820
Southern California
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Your independent consultant is way behind the times. A few years ago we were told that customers engaged in certain types of businesses should be considered high risk. I can remember being told to used NAICS codes to identity our high risk customers. So we did and 98% of them didn't have activity that we considered suspicious.
We have since learned that this approach is not necessary. Just because your customer is in a line of business that is often used by money launderers doesn't mean your customer is high risk. Same goes for professionals like attorneys and CPAs, etc. They usually know the rules relevant to BSA recordkeeping and reporting, so they can do some funny things once in a while, but I would imagine that most of your customers in these professions do not have unusual activity on their accounts. So it makes no sense to classify them as high risk.
I would be concerned that your consultant isn't keeping up-to-date on BSA issues by attending seminars etc. You might want to ask about the consultant's training.
_________________________
Dolly Nugent CRCM Opinions expressed are my own.
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#1076557 - 11/05/08 01:41 PM
Re: Determining High Risk Customers
Kathleen O. Blanchard
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Platinum Poster
Joined: Aug 2006
Posts: 516
Ohio
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I agree that that is not the best risk-based approach. Needless to say, I did not implement the recommendation. We have identified several potentially high risk accounts, but only a handful are truly considered high risk and coded as such.
_________________________
Don't make me say, "I told you so!" Sincerely, your friendly Compliance Officer.
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#1076624 - 11/05/08 02:56 PM
Re: Determining High Risk Customers
Kathleen O. Blanchard
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Platinum Poster
Joined: Sep 2005
Posts: 923
Kansas City
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I work for a consulting firm and we tell all our clients that NAICS codes are a starting point. Actual classification as a high-risk entity must be based on transactions.
_________________________
Opinions are mine and not necessarily those of my employer
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#1076714 - 11/05/08 03:58 PM
Re: Determining High Risk Customers
KC Danimal
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Power Poster
Joined: Sep 2001
Posts: 6,029
Sweet Home AL
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I consider the nature of business to be a factor in determining risk rating. Other factors would include ownership, geographic location(s), types of products and services utilized and transaction history (or anticipated transaction pattern).
_________________________
Life without Jesus is like an unsharpened pencil - it has no point.
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#1076876 - 11/05/08 05:45 PM
Re: Determining High Risk Customers
BrendaC
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Power Poster
Joined: Apr 2005
Posts: 4,013
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We have some types as high risk when they are a new account for us. For example, restaurants or car dealers. Then, after one year we perform an annual review of all highs and, if no issues, they are off the list. Others, such as non-res aliens and import/export stay on the list until 5 years (for us that is not very many accounts). Beyond that we look for out of town ownership or out of towners buying existing customer, significant changes in their risk score (we use Patriot Officer), etc. At the end of the day we do not have the "expected" 1% of our customer base coded high risk.
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#1077114 - 11/05/08 08:20 PM
Re: Determining High Risk Customers
Trees
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Diamond Poster
Joined: Mar 2007
Posts: 2,108
gone fishin'
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We use NAICS codes ... it helps when comparing "like" businesses to see if the activity is normal or not.
_________________________
My opinions are my own, and not that of my employer.
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#1077499 - 11/06/08 02:50 AM
Re: Determining High Risk Customers
Compliance Lover
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Platinum Poster
Joined: Aug 2006
Posts: 629
Paradise!
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If the business fell into the "high risk category", we would open the account (we filled out a KYC that profiled the expected activity of the business client). The "file" would be scanned to the aml/bsa department for monitoring. If the actual activity did not match the profile that was completed upon account opening give or take then there was enhanced due diligence....
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