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Customer Risk Analysis
Automated Risk Analysis
The biggest question for all financial institutions is “When does a customer become high risk?”
The answer prior to May 11, 2018 was “Whenever transaction amounts cause the financial institution to be concerned.”
On May 11, 2018 the Beneficial Ownership Rules went into effect and the answer changed to “Whenever a customer has transaction amounts that are significantly different than the financial institution expects.” Let us give you an example.
A liquor store customer located close to a beach had $170,000 in cash deposits in June of 2020. If the customer had cash deposits of $150,000 in June of 2019, his 2020 activity probably isn’t suspicious (because the increase is only 13%).
A hamburger stand next door to the liquor store had $50,000 in cash deposits in June of 2020. If the customer had cash deposits of $30,000 in June of 2019, his 2020 activity should be closely looked at for other suspicious activity (because his cash transactions increased 66%).
Even though both customers increased their cash deposits by $20,000, it’s the extent to which an increase is unexpected that makes a customer high risk.
So, bottom line: you have to know what a customer is expected to do, before you can identify those who have unexpected variances. Under the 2018 rules, a customer is no longer considered high risk simply because they have large transactions.
Our automated risk analysis strategy uses historical data and transaction-averaging to calculate anticipated activity. A customer is identified as high risk when their activity is significantly higher than we expect.
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Every month, we calculate customer baselines. The baselines include the percentage change from the same month of the prior year.
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Our baselines include such things as cash-ins and outs, ACH transactions, IATs, wires, total total transactions and more
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Once we create the baselines, we review all customers that have significant activity. The regulators refer to this step as “The Transaction-Trigger Review.”
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The greater the degree of unexpected activity, the higher the risk rating.
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Bottom line: we make BSA risk management easy and affordable.