5 Tenets of Customer Due Diligence

Posted on 10/23/2015  

Government regulators levy heavy fines on financial institutions that fail to comply with anti-money laundering regulations. Add to this the competitive landscape brought on following the Great Recession, and these fines can be debilitating. Zencos is helping customers avoid hefty fines, streamline internal processes and maintain auditable records throughout the Enhanced Due Diligence (EDD) process. Some of the key components of these processes include:

1. A systematic approach to rating all customers in regard to money laundering risk

Financial institutions work with customers of diverse backgrounds and behavior. If a customer exhibits  behavior indicating potential high money laundering risk or has other high risk factors such as connections with a terrorist organization, it exposes the bank to risk. Therefore, banks need the ability to quickly build, simulate and deploy an EDD selection model specific to their particular needs and flexible enough to assess a broad range of potential customers.

An ideal Customer Due Diligence (CDD) process allows a business analyst to consolidate data and assess risk in real-time. This eliminates time-consuming communications with programmers and other technical resources. Zencos’ approach allows for real-time assessments and is fully auditable, so you can locate issues and provide information to government regulators efficiently.

It’s also important to employ a solution that allows for model validation and tuning processes to meet growing model governance expectations. This allows for a smooth and consistent internal and external audit of your organization’s EDD models.

2. An accurate customer profile with current data, especially as it pertains to expected behavior

Keeping customer data current and remediating profiles of customers whose Customer Identification Program (CIP) data was collected many years ago is a daunting task. As time and resources become more expensive, it is more critical than ever to have software that enables efficient management of customer profile data.

The Zencos approach combines effective user interfaces with powerful data mining processes. These work together to find and validate customer profile updates. Moving to a proactive process allows your organization to focus on profiles that truly need remediation and, therefore, saves time and resources. This process also helps you test and validate trends, increasing your predictive capabilities — all so you can know your customer.

3. A fully auditable method for conducting all EDD reviews and addressing backlogged reviews

Implementing a new customer risk-rating model requires a significant commitment of resources. A financial institution must complete EDD reviews of incoming customers as well as all customers who were not previously vetted. To handle a workload of this magnitude, EDD analysts need a process that is efficient enough to be fully auditable, easily reviewed and repeated, but also robust enough to provide all the information an institution needs to assess the money laundering risk of every potential relationship.

The Zencos Financial Solutions group provides a flexible and fully auditable workflow process. Our approach allows institutions to handle an increased workflow and ensure consistent results. The efficiencies gained as a result alongside powerful analysis tools maximize the effectiveness of each analyst, improving the productivity of the institution as a whole. If time and resources are your greatest assets, a smart EDD solution can help you get the most out of your effort.

4. An EDD review selection model that a BSA/AML department can understand and defend

Building an EDD selection model typically means the EDD business analyst has to work with programmers, database administrators and perhaps statisticians to develop, simulate, validate, deploy and tune models. You can imagine this takes a considerable amount of time and energy. The process has to be tested, easily repeated and audited for it to be considered a success.

When Zencos’ Financial Solutions team partners with our customers’ EDD business analysts, our approach allows them to be more self-sufficient. This is because we provide a standard approach to building the EDD selection model and powerful tools that work seamlessly with that approach. As a result, one person can do a job that once required 3 to 5 trained experts.

5. An audited process for managing regulator demands for data and model validation

The EDD selection model must be tuned on a regular basis and the tuning process must be well documented. With each change in laws and reporting requirements, you must adapt.

The Zencos approach allows for a flexible and auditable tuning process. This process provides for consistency in approach and documentation that saves time and enables a smoother audit process. If half the battle of avoiding heavy regulatory fines is mitigating risk, the other half may be properly communicating your practices to regulators during audits. Our solution allows you to collect, organize and provide AML data that validates that your EDD model is working correctly.

Each Zencos solution is matched with expert consulting

At Zencos, we build solutions that empower you to quickly and efficiently assess and eliminate risk. Our solutions are flexible enough to tailor to your needs and powerful enough to keep up with ever-increasing compliance demands. 

But we never stop at a plug-in solution. Our financial crime experts help you get up to speed, implement solutions and learn how to access and audit information regularly — all so you can do your job more efficiently. 

For more information or to schedule a consultation, please contact Eric Hale.


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