A risk score is a numerical or categorical value assigned to a customer, entity or transaction to represent the financial crime risk level they pose. It is the result of a structured risk assessment process that considers multiple risk factors, such as geographic location / jurisdiction, industry, customer type, ownership structure, transaction behavior and exposure to sanctions or politically exposed persons (PEPs).

A risk score helps financial institutions and regulated entities determine how much Due Diligence (DD) is required for a given relationship when performing Know Your Customer (KYC) and Anti-Money Laundering (AML). Low-risk scores may warrant standard Customer Due Diligence (CDD), while high-risk scores typically trigger Enhanced Due Diligence (EDD), more frequent reviews and stricter monitoring procedures.

Risk scores are usually generated using a Risk Scoring Model which assigns weighted values to various indicators based on their potential to signal financial crime. These scores can be recalculated automatically during Ongoing Due Diligence (ODD) as new data is collected or customer behavior changes.

Using risk scores allows organizations to take a risk-based approach to compliance, focusing their resources on higher-risk relationships while maintaining regulatory standards. Accurate and dynamic risk scoring is essential for meeting AML requirements, managing reputational risk and preventing the misuse of the financial system.