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THE KYC DICTIONARY
Risk Level
Definition
Risk level refers to the classification of a customer, entity or transaction based on the likelihood of being involved in financial crime, such as money laundering, fraud or terrorist financing.
Risk levels are typically categorized as low, medium or high, with each level determining the degree of due diligence required. Some organizations will also have a very high risk level as well.
A low-risk customer may undergo standard due diligence, while a high-risk customer may be subject to enhanced due diligence (EDD) and continuous monitoring.
Factors influencing risk level include geographic location, industry type, transaction behavior, ownership structure and potential exposure to politically exposed persons (PEPs) or sanctioned entities.
Establishing accurate risk levels is essential for effective risk management.
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