Risk assessment tools client risk scoring
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Risk Assessment Tools & Client Risk Scoring. Regulatory Requirements: Institutions should have a risk based approach to managing AML Institutions should identify higher risk clients and perform enhanced due diligence and on going monitoring. Risk Based Approach. Product. Geography.

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Risk Assessment Tools & Client Risk Scoring

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Risk assessment tools client risk scoring

Risk Assessment Tools & Client Risk Scoring


Risk based approach

Regulatory Requirements:

Institutions should have a risk based approach to managing AML

Institutions should identify higher risk clients and perform enhanced due diligence and on going monitoring

Risk Based Approach


Risk based aml programs

Product

Geography

Client Type

Enterprise

Enterprise Unit AML Inherent AML Assessment

SAMPLE CONTROLS

AML Program Assessment

High Risk Business Units

Branch Risk Ratings

More frequent review and training

High Risk Branches

Client Risk Scoring

Targeted client due diligence and transaction monitoring

High Risk Clients

Product Risk Assessment

Automated transaction monitoring & tighter controls

High Risk Products

Risk Based AML Programs


Rbc risk assessment tools

RBC has developed tools to quantify risk associated with the primary drivers of AML Risk:

Geography

AML Country Risk Model

Products / Services

Product / Service Risk Assessment

Customers / Clients

Client Type / Segment Risk Model

RBC Risk Assessment - Tools


Enterprise approach

Effective Risk Based AML Programs require an enterprise-wide approach

Results should answer these questions:

What is the scope of our risk universe?

What are our inherent AML risks?

What internal controls will be needed and where?

RBC has developed and implemented a Business Unit Risk Rating System to answer these questions

Enterprise Approach


Unit inherent risk ratings

Business Units are scored relative to one another using the key risk drivers of geography, product & client

The Risk Rating System contains logic to arrive at composite risk score for unit

Higher number of points is intended to reflect a higher level of inherent AML risk within a business unit relative to other units

Business units are assigned a risk rating of “High”, “Medium” or “Low” upon a review and analysis of all AML Inherent Risk Rating results.

The model and ratings are updated annually

Unit Inherent Risk Ratings


Rbc unit risk rating system sample

RBC Unit Risk Rating System (Sample)


Rbc unit risk rating system

RBC Unit Risk Rating System


Rbc unit risk rating system1

RBC Unit Risk Rating System


Rbc unit risk rating system2

RBC Unit Risk Rating System


Sample aml inherent unit risk ratings distribution

Sample AML Inherent Unit Risk Ratings Distribution


Risk assessment tools client risk scoring

  • Client Risk Assessment Processes: Client Risk Scoring


Rbc approach to client risk scoring in retail banking

RBC has implemented a Client Risk Scoring (CRS) Solution for the Canadian retail banking client base.

Solution has 2 components:

1. Scoring

Clients are risk scored through SAS

EDD queue in the AML System

2. Enhanced Transaction Monitoring

New Queue in the Transaction Monitoring System

New rules tailored to the Client Risk Type

RBC Approach to Client Risk Scoring in Retail Banking


Risk assessment tools client risk scoring

Tiered Client Risk Management

  • Highest risk clients are appropriately identified, investigated and monitored

  • Ensures that all clients in RBC are appropriately monitored on an on-going basis


Key aml risk drivers

Key AML Risk Drivers

The key criteria used in rating client risk are:

  • Geographic Risk

    • RBC Country Risk Ratings

    • RBC State Model Ratings

  • Client Type Risk

    • RBC Business Risk Ratings (SIC Codes)

  • Product Risk

    • Product Risk Assessments

      The CRS system leverages the models RBC has developed to risk rank the attributes related to the above-noted criteria.


Risk drivers geography

Risk Drivers - Geography


Risk drivers client

Risk Drivers - Client


Risk drivers products

Risk Drivers - Products


Crs model approach

CRS Model - Approach


Crs segmentation and scoring

CRS Segmentation and Scoring

  • RBC solution is a hybrid model that uses both rules and a scoring engine

  • Certain clients by their nature always require EDD

  • Other clients will be identified through scoring a combination of risk factors

  • Personal and Business clients are scored in different models and have different risk types


Risk assessment tools client risk scoring

Personal Client Risk Types

Politically Exposed Person

Non-Resident

High Net Worth

Monitor (High Risk Score)

Business Client Risk Types

Money Service Business

Non Government Organization

Non Bank Financial Institutions

Non-Resident

Monitor (High Risk Score)

Look to your regulatory guidance and your client base for appropriate categories

Examples of Client Risk Categories to Consider


Personal client scoring approach

Personal Client Scoring Approach


Personal client scoring approach1

Personal Client Scoring Approach


Crs scoring model

Weighted - Additive Approach is used to Determine the CRS Risk Score

Data elements are scored (e.g. Country Risk Ratings)

Risk Drivers are weighted for relative importance in determining client risk

Clients exceeding a predetermined threshold will be subject to EDD

CRS Scoring Model


Crs model examples

CRS Model – Examples


Crs model examples1

CRS Model - Examples


Non personal client scoring

Non-Personal Client Scoring


Risk assessment tools client risk scoring

Scoring Frequency

  • 1. Initial Load (all Clients)

    • Assigns client to appropriate Client Risk Type for Enhanced Transaction Monitoring

    • Select high risk clients to generate EDD incidents

    • These incidents will be handled through batch EDD mechanism (potential sources include World Check Stand Alone Filter, Syfact, Complinet)

  • 2. Daily Scoring

    • Client will be scored / rescored when a new account is opened

  • 3. Periodic Scoring

    • Captures changes to client demographic profile

    • Captures changes to client transaction activity


Risk assessment tools client risk scoring

Assigning Thresholds - Transactions

  • The initial and periodic model assesses and scores client transaction volume activity

  • Type of transactions include:

    • Domestic wires

    • International wires

    • Cash transactions (LCTRs)

      All are measured on frequency

      and value of transactions


Risk assessment tools client risk scoring

Assigning Thresholds - Transactions

  • To better analyze clients transactions peer groups were created based on client segment

  • Each of the 5 peer groups can have different thresholds and scores assigned to a given level of transaction activity


Assigning thresholds

Assigning Thresholds

  • Can set different scoring thresholds for:

    • Business clients initial / periodic model

    • Personal clients initial / periodic model

    • Business clients daily model

    • Personal clients daily model


Assigning thresholds1

Assigning Thresholds


Enhanced due diligence for clients that are identified through crs

Need a case management system

Consider creating a score override function:

AML risk is not a science

Override enables you to elevate a client’s score based on other information

Enhanced Due Diligence for Clients that are identified through CRS


Client risk type

Client Risk Type


Edd queue

EDD - Queue


Enhanced transaction monitoring

Enhanced Transaction Monitoring


Questions

QUESTIONS?


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