Customer Due Diligence - Performing Risk Scoring to Fight Crimes in Businesses
Spread the love

Financial firms can experience a lot of financial growth, but there is a risk of fraud. Cybercriminals want to exploit the sector for their malicious goals. Banking service providers have to spend millions of dollars in case of non-compliance with KYC & AML protocols. Experts must opt for innovative digital solutions such as customer due diligence & KYC verification to deal with the above challenges. This is essential to discourage identity theft, money laundering, and terrorism financing cases.

Complete Procedure Behind Risk Assessments

The primary objective behind fraud risk evaluations is to deal with loopholes in the defence mechanisms of any business against all kinds of scams. Internal fraud comprises the misappropriation of assets, whereas external scams include data privacy breaches and Account Takeover Fraud (ATO).


Perpetrators normally target the loopholes in the internal systems of a corporation. KYC verification and customer due diligence are mandatory for all organisations to identify shortcomings in security systems and calculate risks.

See Also : How to Enter Referral Code in Helo App? Get Rs.350 from Referral Code.

Service providers can personalise risk assessment systems per modern-day industries’ needs and operations. Companies’ management teams responsible for their departments must experience customer due diligence by testing the company’s fraud exposure. Certainly, there will always be internal and external business environment changes, and professionals must perform risk assessments regularly for ultimate security. The latest  customer due diligence and fraud risk assessment must address four essential areas:

  • Checking Asset Misappropriation

Fraudsters can steal inventories, cash, and business assets for malicious purposes. Misuse of assets has a broader meaning than is usually understood. Workers who use company equipment for personal gain are stealing the supplies. 

  • Analyse Financial & Non-Financial Reporting

Several inconsistencies between the non-financial and financial data can result in internal fraud. The management can commit crimes by overstating yearly revenues, company assets, and profits. Risk assessment and customer due diligence systems can accurately monitor business performance indicators. For instance, the innovative process can record the number of clients’ accounts, stores, and bank statements.

  • Identifying Illegal Acts

Performing audits with the KYC process can help professionals keep track of data regarding scams and types of fraud a business usually faces. In this light, executing customer due diligence systems can help businesses to identify and mitigate fraud in real-time.

  • Performing Risk Scoring for Customers

Risk scoring empowers businesses to identify risky customers that can threaten businesses. A risk scorecard serves two important purposes. It is a:

  • The form has essential data on customers for the risk assessment process.
  • A model that inputs all the information and converts it into a score.

The scorecards can change depending on businesses because all corporations have diverse clientele. In this light, the risk scores of customers are also different. Besides KYC data, risk scorecards must include information on the sources of funds, the nature of business partnerships, & the PEP’s status. 

What are the Risk Scoring Factors?

The following section highlights various risk-scoring elements that professionals must keep in mind while performing customer due diligence:

  • Jurisdiction-Based Risk

Businesses that operate in high-risk locations must validate the identities of their customers in depth. For this reason, professionals must implement enhanced due diligence procedures and not customer due diligence for risk evaluation.

  • Source of Funds

The risk associated with money can be detrimental to modern-day businesses. For enterprises that want to establish strong relationships with their high-risk consumers, such organisations must validate all sources of income. This approach will help businesses create a strong risk profile. 

  • Watch List Risk

The risk with the customers on global watchlists and financial crime databases is a red flag for entrepreneurs. Onboarding such types of high-risk clients can be detrimental to corporations. Hence, screening consumers through customer due diligence and risk assessment systems is essential for organisations.

  • Legal Structure & Ownership Risk

The risk linked with the legal structure of a client depends upon its private/public status. The risk examination system highlights if the customer has public or private standing. After this, the procedure searches the concerned legal structure from the data. This approach helps business experts create an accurate risk profile of the entity. 

Performing Ongoing Supervision for Gathering Valuable Risk Insights

Politically Exposed Persons (PEPs) & money launderers are a high risk to modern-day companies in several ways. For fraud prevention, all organisations must calculate the risk scores of new clients during customer onboarding. Experts must thoroughly evaluate high-risk consumers’ credentials, ensuring compliance with Anti-Money Laundering (AML) obligations. In this light, ongoing monitoring in AML control procedures to deal with high-risk entities. Various data sources such as PEPs lists, global watchlists, and financial crime databases are conveniently accessible for experts to screen their clients and create risk profiles.

Concluding Remarks

Working with third-party service providers can help industries to implement IDV & anti-money laundering solutions while assisting corporations to follow international regulations. The progressive approach helps companies validate customers’ IDs by analysing real-time data. Implementing customer due diligence can help businesses create risk profiles and calculate scores for active fraud prevention. The innovative solutions produce high-quality results in real-time and protect organisations from external attacks.


By Rahul Kumar

Rahul Kumar is a professional blogger, author and founder of One Step Ahead Tech Magazine and he is working with techibomma also. He has more than 5 years of experience in the technology field, he is an expert in software, mobiles and coding, but also deals with other technologies such as electric scooters, and watches, smartphones, fitness, mobile games and more. He trades with clients worldwide and also trains others on various technical tools and software.

Leave a Reply

Your email address will not be published. Required fields are marked *