Why the best AML/CDD teams go beyond risk scores

Corporate anti-money-laundering (AML) and customer due diligence (CDD) teams use automated risk-analysis tools to improve operational efficiency and screen customers and vendors who may represent an unacceptably high risk to the institution. AML/CDD departments may miss opportunities for good business relationships if they routinely reject potentially risky clients because of their automated system flags or avoid them because it seems more efficient.

Why? Automated screening programs can flag customers as high-risk for many reasons. According to how the Know-Your-Customer (KYC) risk parameters are set up, some systems may give too much weight or misclassify lower-risk clients as high-risk for reasons that do not represent a genuine threat.

A high-risk score only provides some of the information necessary to understand a client’s risk fully. AML/CDD Teams should investigate why customers were flagged and determine if they justify not onboarding them. Otherwise, they may be turning away valuable customers without good reason.

Risk scores can help you dig deeper.

There are many reasons why a client might be given a high-risk rating. The business may have been flagged due to a previous lawsuit which was resolved in their favor. The company has changed owners, and the system flags the former owners. Perhaps the customer has been a victim of identity fraud. Their line of work was miscategorized as a money laundering risk. The business may have been mistakenly linked to another high-risk company with a similar title.

No matter the reason, if AML/CDD team relies on risk scores too much and needs to try to understand what drives the risk, then the institution could be undermining itself by adopting false notions about security and efficiency. KYC protocols are best implemented in layers so that teams can review flagged accounts and determine whether or not they should be investigated further. The overall efficiency of risk-assessment software should also give AML/CDD Teams ample time to explore high-risk clients.

Study: Automation is more than just a time-saver

Thomson Reuters commissioned Forrester Research, an independent research firm, to test this theory. The study was conducted on its CLEARID Confirm and Risk Inform solutions for fraud prevention and due diligence. Forrester interviewed Thomson Reuters clients to determine the benefits that CLEAR ID Confirm or Risk Inform brought their organizations. Forrester was told that these tools freed up time to conduct investigations and made investigations more efficient and effective. They also gathered detailed information about high-risk accounts and compiled it into an easy-to-understand report.

According to Forrester, the two CLEAR products made general risk assessment 40% faster. This reduced the time that employees spent on routine risk assessments. The two CLEAR solutions made it easier for employees to perform routine risk assessments by 40%.

A user stated: “Clearly helps us focus on higher-risk clients that we may still be able to approve and do business with. CLEAR allows us to dig deeper and know, for example, the exact legal issues that the customer has.

In these cases, CLEAR users customized a complete report to their KYC threshold for different types of businesses. The interviewees stated that the data contained in each piece were extensive, accurate, and current. After reading the words, it was easy to decide whether or not to accept a new client. Interviewees appreciated that the statements were transparent about where the data came from. Finding the information they needed was easy, especially concerning criminal records and legal issues.

Understanding your customers’ story

It is important to remember that risk assessment tools are flawed. How an institution uses them can be a critical consideration. If you rely too heavily on risk scores when making onboarding decisions, great partnerships could slip through and be taken by a competitor. Each customer or vendor is unique, and understanding that story will help you strengthen your AML efforts and open the door to better business relationships.

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