In October, the Financial Conduct Authority (FCA) UK fined Starling Bank £9 million for failures in anti-money laundering (AML) checks and customer screening processes. This underscores the importance of risk screening and compliance risk assessment in the financial sector. Financial institutions must implement a robust risk-based approach to prevent the misuse of financial systems and meet evolving regulatory requirements.
This article explains how customer screening impacts the customer risk score, why it matters, and how institutions can align screening efforts with effective AML customer risk scoring frameworks.
What Is Customer Screening in AML Compliance?
Customer screening is the process of verifying customer identity and assessing their risk profile against regulatory lists. It involves matching customer data against:
This is an important process in anti-money laundering (AML) and counter-terrorism financing (CTF) programs. This process is foundational to customer due diligence (CDD) and, in higher-risk cases, enhanced due diligence (EDD). It helps financial institutions identify individuals who may pose money laundering or terrorism financing risks.
Effective customer screening is not only a regulatory requirement but also a core function in maintaining integrity, preventing fraud, and supporting safe financial operations.
What Is a Customer Risk Score or Risk Rating
A customer risk score, also referred to as a customer risk rating, quantifies how risky a customer is based on a combination of static and dynamic data points, such as:
- Transaction behaviours
- Negative news or adverse media
- Jurisdiction risk
- Business type
- Source of funds
It is used to determine how intense transaction monitoring a customer should be subjected to. This scoring forms a core component of AML customer risk scoring models. A proper risk profile evaluation ensures institutions can apply proportionate due diligence. High-risk scores trigger enhanced due diligence, while low-risk customers may follow simplified onboarding procedures.
How Customer Screening Affects the Customer Risk Score
If a customer with a low-risk score suddenly turns up in a PEP list or adverse media, the updated screening list would trigger a reassessment of their profile and escalate them to enhanced due diligence status. Having an integrated system for both risk scoring and screening helps to spot risks fast and mitigate them.
Customer screening directly affects the customer risk score by identifying data that might not be evident through customer-submitted documentation. If a customer is flagged during screening—for example, due to newly listed sanctions or appearance in negative media—their risk score is automatically elevated.
This integration ensures that your risk-based approach remains dynamic and responsive. For instance:
- A customer previously scored as low-risk appears on a PEP list
- The system triggers a risk profile reassessment
- The individual is escalated to an enhanced due diligence process
The Financial Action Task Force (FATF) and European Banking Authority (EBA) both emphasize the need for automated tools that merge screening and risk mitigation capabilities to deliver real-time accuracy.
Updated screening results also had an impact on the customer’s score. This ensures that the scoring framework is dynamic and constantly reflects evolving risks. Automated systems like Youverify's customer risk rating system are most effective as they integrate screening tools into their AML risk scoring platforms to ensure real-time accuracy.
Real-World Implications of Customer Risk Scoring
The customer risk rating has many real-world implications and helps determine appropriate levels of monitoring. They can be used by financial institutions to monitor existing customer relationships and escalate those for review. A high-risk score can deter an institution from engaging with a customer completely or prompt stricter transaction limits.
In places with strict regulations, penalties will apply when you do not integrate customer due diligence and data screening into a risk-scoring model.
Some notable cases involving banks show how poor compliance risk assessment and screening, and failure to integrate KYC and risk scoring measures into AML compliance programs can lead to large fines and reputational damage. Customer screening can also influence business strategy. A firm can decide to limit exposure to some regions or industries based on screening reports on customers in such jurisdictions.
Key implications include:
- Rejection of high-risk clients
- Enhanced transaction monitoring for suspicious customers
- Limiting exposure to certain industries or regions based on screening reports
- Fines for failing to integrate KYC and risk scoring measures into compliance programs
Proper integration of customer screening and compliance risk assessment into the risk-scoring model enables smarter decision-making and safer operations.
Best Practices for Aligning Customer Screening with Customer Risk Scoring
To improve the impact of customer screening and ensure accurate risk scores, you can consider these best practices:
1. Integrate Screening Into Risk Scoring Model
Make screening part of your overall AML customer risk scoring system not a separate workflow. Real-time screening results should directly influence the customer risk score.
2. Use a Risk-based approach to AML Compliance
Design your due diligence levels based on the customer’s risk score. This ensures that you are in line with regulatory requirements but also optimises resource allocation. High-risk customers should trigger enhanced due diligence while low-risk ones follow simpler processes.
3. Update data sources regularly
Screening tools should be updated regularly to reflect changes in global sanctions, PEP lists and adverse media. An outdated screening process can lead to inaccurate assessments and risk scoring.
4. Automate Risk Assessment Processes
Use technology such as the Youverify customer onboarding solution and the adverse media screening solution to automate your customer screening and customer risk scoring processes. This leads to fewer human errors and increases speed.
5. Train compliance teams
Make sure your team understands KYC and risk scoring, AML compliance, screening and customer due diligence. Periodic training helps reinforce the importance of these measures. Team members should be familiar with KYC and risk scoring principles to identify red flags early and act accordingly.
6. Conduct Regular Audit and Review
Periodic reviews help uncover gaps in your AML risk framework, such as inconsistent scoring or unflagged high-risk customers.
Bottom Line
The impact of customer screening on the customer risk score cannot be overstated. Screening is not just a formality; it's a regulatory necessity and a strategic defense tool. A reliable, integrated customer screening system enhances the accuracy of AML customer risk scoring, improves compliance outcomes, and ensures your business can quickly respond to emerging threats.
Youverify's customer risk assessment solution helps financial institutions execute precise screening, automate scoring, and maintain a compliant and efficient risk-based approach. With built-in systems for customer due diligence, adverse media checks, and compliance risk assessment, Youverify simplifies regulatory workflows and keeps your operations audit-ready. Book a free demo session today with our risk rating professional.