Customer Risk Profiling Under IFSCA Guidelines, 2022

Customer Risk Profiling Under IFSCA Guidelines, 2022

The International Financial Services Centers Authority (AML, CFT, and KYC) Guidelines, 2022 mandates the regulated entities to assess the level of risk posed by the customer and apply adequate mitigation measures to manage the risk.

While establishing the business relationship or executing a transaction, the regulated entities must assess the level of money laundering and terrorist-financing risk the customer poses to the business and determine its risk profile.

For performing customer risk assessment, there are specific parameters that one must take into consideration. Here is the illustrative list of parameters that must be considered for creating a customer’s risk profile:

  • Timing and seasonality of transactions
  • Involvement of counterparties and intermediaries
  • Customer’s financial profile
  • Ownership and management structure
  • Nature and purpose of the business relationship
  • Location of customer
  • Nature of customer’s activities
  • Estimated size or value of the transaction
  • Based on the evaluation of these parameters, it is determined whether the customer poses low-risk, medium-risk, or high-risk to the regulated entity.

    Customer risk profiling is crucial as it decides the level of due diligence required of every customer individually. One can go for simplified due diligence when the customer poses a low risk. However, enhanced due diligence is required when the customer risk profile suggests high level of ML/FT risk.

    We are committed to assisting proper enforcement of AML and CFT regulations to regulated entities in India by designing a personalised AML framework – policies, internal controls, and procedures – and ensuring effective implementation of the same.

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