How can financial institutions identify high-risk customers?

Identifying high-risk customers is crucial for financial institutions as it enables them to effectively monitor and manage potential threats related to money laundering and other illicit activities. Analyzing transaction history and geographic data is an effective method because it provides insights into customer behavior and patterns that may be indicative of higher risk.

Transaction history analysis allows financial institutions to detect unusual activities, such as sudden changes in transaction volume, large cash deposits, or international transfers that do not fit the customer's typical behavior. Geographic data can help pinpoint customers operating in or frequently transacting with countries known for higher levels of financial crime or those with less stringent regulatory environments.

By combining these elements, institutions can develop risk profiles for each customer, which aids in distinguishing between low-risk and high-risk individuals. This method is based on established risk assessment frameworks and is a staple of effective compliance programs, making it a proactive approach to identifying potentially problematic relationships before issues arise.