Glossary > Finance > Regulatory And Compliance > Know Your Customer (KYC)

High-Risk Customers

High-risk customers are individuals or entities that, due to certain characteristics or behaviors, pose a greater potential of involvement in illegal activities like money laundering or terrorist financing.

Example #1

A customer who wants to make large transactions with no clear business rationale.

Example #2

An individual who provides inconsistent identification documents or refuses to provide required information.

Misuse

Misuse of high-risk customers can lead to the facilitation of money laundering or the financing of terrorism. For example, if a high-risk customer is allowed to conduct large financial transactions without proper scrutiny, it could enable illegal funds to enter the financial system unnoticed. This puts the financial institution, its customers, and the overall system at risk of being used for criminal activities.

Benefits

Proper identification and monitoring of high-risk customers help financial institutions prevent illicit activities. By implementing stringent KYC procedures for high-risk customers, institutions can detect suspicious behaviors early on, report them to authorities, and protect the integrity of the financial system.

Conclusion

Identifying and managing high-risk customers is crucial for safeguarding the financial system from abuse and ensuring compliance with regulations aimed at preventing money laundering and terrorist financing.

Last Modified: 4/30/2024