When a business forms a relationship with a new customer, an initial screening is conducted to check for any risk signals associated with that client. This can include screening against watchlists and if any adverse media articles exist about that client.
However, a client's risk profile can change over time. That's why regulatory expectations and international standards require businesses to have processes for ongoing monitoring of clients for financial crime risks after the initial screening.
Ongoing monitoring refers to the procedures and controls an institution implements to continuously monitor customers and their activity after the establishment of the relationship. The goal is to identify any changes to the customer's risk profile based on new information that comes to light over time.
Common Ongoing Monitoring Practices
There are a few common practices businesses implement for ongoing monitoring:
- Rescreening customers against watchlists and sanctions on a periodic basis to check for new matches. Authorities constantly update watchlists.
- Reviewing a client's transactions regularly to check if the activity is consistent with the stated expected behavior and economic profile. Red flags or outliers must be examined.
- Reassessing a client's risk scoring based on changes to their attributes
- Topping up due diligence on the client with new information obtained over time to have a robust understanding of risk.
- Tuning the parameters and rules in transaction monitoring systems as needed to detect potentially suspicious transactions.
The frequency and depth of ongoing monitoring controls applied depend on the risk category the customer falls under. High risk customers may undergo enhanced monitoring measures compared to low risk ones. Prompt reporting and investigation of suspicious activities is also a critical control expectation.
Implementing robust ongoing monitoring practices is vital for businesses to manage risk appropriately and meet compliance expectations. Reaching out for guidance on industry best practices can further strengthen monitoring procedures.