How a KYC Risk Rating Can Help Your Company

KYC Risk Rating

If you are involved in the financial or business sectors, it is important to know both what a KYC risk rating is and how you can calculate yours. KYC, or “know your customer”, is an important process that allows financial institutions and businesses to verify the identity of their customers.

Doing so is vital, as it ensures that an institution is not doing business with an individual involved in either money laundering or another form of financial crime, such as terrorist financing.

What is KYC Risk Rating?

A KYC risk rating is simply a calculation of risk: either that posed by a specific customer or that which an institution faces based on its entire client portfolio. Most institutions calculate both of these risk ratings as each of them is equally important.

How KYC Risk Rating Works

Under strict anti-money laundering regulations put in place by national governments, the FATF, and the UN, all financial institutions and many types of companies are required to closely monitor their clients’ accounts and report any suspicious activity.

These legal requirements often take the form of KYC policies, which are essential in preventing and reducing financial crime.

Institutions gather as much data as they can about their customers, and they then compile this into a portfolio.

Once the portfolio is completed, they closely analyse the information that they have obtained, and they determine the KYC risk rating of that specific client. If the risk rating is high, that client will be consistently and closely monitored. If the risk rating is low, the client will still be monitored, but not as diligently.

KYC Risk Rating: Automation vs. Manual

Millions of transactions occur every day throughout the world, meaning that institutions constantly receive vast amounts of data that need to be analyzed.

KYC risk ratings allow for institutions to quickly and efficiently sift through this information.

Many of the KYC risk rating tools are technology-based and at least partly automated, as manually organizing large quantities of data is ineffective and takes far too long.

KYC Reasonable Reassurance

Reasonable assurance in KYC risk rating is acknowledging that, no matter the quality of information used or effort spent on research, it is impossible to be certain that any customer is entirely free from risk.

Realising that 100% certainty is not attainable forces compliance professionals to take realistic, risk-based approaches to KYC and the prevention of financial crime.

This allows compliance officers and legislators to craft anti-money laundering policies that are both as effective and as unburdensome as possible.

KYC reasonable assurance also determines how much information should be collected about a customer. This relates to determining the risk rating of clients, and how closely they should be monitored, as part of KYC Enhanced Due Diligence.

These institutions must dedicate more effort than normal towards monitoring accounts and searching for financial crimes, and the standards for what classes as reasonable assurance will be higher.

Making Predictions with KYC Risk Rating

A KYC risk rating is also essential for another important reason: it allows institutions to make a prediction of what they believe a client’s account should look like in the future.

This is useful for determining whether something is unusual, out of place or suspicious.

If a client’s transactions begin to diverge significantly from the institution’s predictions, the institution will be notified and they will be able to further analyze the transactions for suspicious behavior.

If you wish to keep your company free from involvement with corruption and money laundering, it is vital that you consistently calculate the KYC risk rating of all your customers.

This is the surest way to determine which clients present a higher risk to your company, thus allowing you to avoid liability and ensure that these clients are monitored appropriately.

Get Started Now

Identify risks before they become threats and protect your business. Screen against the world’s only dynamic global database of Sanctions and Watchlists, PEPs and Adverse Media, in consolidated, structured profiles.



Share your thoughts and start a conversation.

Leave a Reply

Related articles:

Electronic Identity Verification
June 22, 2014

Electronic Identity Verification

How Electronic Identity Verification Helps Fight Financial Crime Given the prevalence of financial crime, new…
Read More
June 24, 2014

KYC Remediation

The Importance of KYC Remediation and Why You Should Be Doing It If you are familiar…
Read More
KYC Enhanced Due Diligence
June 27, 2014

KYC Enhanced Due Diligence

Overview of KYC Enhanced Due Diligence Policies Know Your Customer (KYC) is the process of gathering…
Read More
Know Your Customer Checks KYC
April 24, 2018

Know Your Customer (KYC) Checks

What are Know Your Customer (KYC) Checks? When people talk about conducting KYC checks, they…
Read More
Know Your Customer KYC
July 1, 2018


What It Means To "Know Your Customer" What is Know Your Customer (KYC)? Although the…
Read More
Customer Due Diligence CDD
June 24, 2019

Customer Due Diligence (CDD)

What Is Customer Due Diligence (CDD)? Customer Due Diligence (CDD) in banks and other financial…
Read More
kyc aml
November 27, 2019


KYC vs AML - What Is The Difference? Anti-money laundering (AML) regulations are mandated by…
Read More

To make sure you get a great experience on our website, we use cookies. To confirm you consent to this, please click below. Read more about our Cookie Policy

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.