Financial institutions (“FI’s”) are required by Anti-Money Laundering (“AML”) regulations to perform risk-based due diligence for their customers and prospective customer. This due diligence is referred to as Customer Due Diligence (“CDD”). FI’s must perform an additional level of due diligence for customers presenting a high level of AML risk, known as Enhanced Due Diligence (“EDD”).
FI’s utilize a CDD process when onboarding a new customer, when opening new accounts for an existing customer, and when selling additional products and services to an existing customer.
When opening a new account, the first step the FI must take is to understand the customer’s purpose in opening the account, including how the account will be used by the customer. For example, the FI must know what types of transactions will be processed in the account, such as cash deposits and withdrawals, wire transfers, debit card transactions, loan repayments and a host of other possible transactions.
One of the goals of this process is to ensure that an FI can determine what is normal and expected transactional activity for an account while keeping an eye out for potentially suspicious money laundering activity. The FI is then able to track transactional activity to account(s) connected to the customer with the products and services, and volumes of such transactions on a regular basis, such as monthly or quarterly.
At certain FI’s, it is an AML compliance team’s responsibility to compare information received from the customer at the time of account opening with actual transaction activity processed in the customer’s account. To perform this comparison, the FI may choose to establish an Anticipated Behavior Profile for the customer and monitor the actual transactional activity against the profile for deviation.
Typically, the process of monitoring behavioral profiles and deviations from actual transaction volumes by FI’s is accomplished through the use of transactional monitoring software systems, such as the Prime Compliance suite or the Actimize suite of monitoring tools. These systems enable the FI’s to determine acceptable levels of risk for any deviances from expected transactional thresholds and patterns. The FI’s are then able to determine when they want to perform reviews of the transactional activity and investigate whether any regulatory reports for the suspicious activity should be filed with the appropriate authorities.
One of the key issues FI’s encounter with this process is heavy reliance upon information declared by the customer at the time of account opening. It is not prudent for FI’s to rely only on such information provided by the customer.
Determining what actions to take to mitigate risks in variances between information from the customers and actual transaction activities is a key concern for FI’s. Building an automatic profile through software tools can help alleviate certain conditions.