Customer Risk Rating Guideline

Q1 2025 - Risk Assessment Framework

Lan’s Enterprise Limited Training Program

Training Objectives

What you’ll learn today:

• Understand the risk-based approach (RBA) to AML/CFT compliance
• Identify key risk factors in customer assessment
• Apply the customer risk rating framework
• Recognize high, medium, and low risk indicators
• Implement ongoing monitoring and risk reassessment

The Risk-Based Approach

Two Pillars of AML/CFT Compliance

Holistic Risk Assessment

• Business-wide risk evaluation
• Product, service, and channel analysis

Targeted Risk Assessment

• Individual customer evaluation
• Transaction-specific monitoring

Regulatory Framework

Key Legislative Requirements

• AML/CFT Act 2009: Risk-based approach (Section 58)
• Customer Due Diligence: Standard, Simplified, or Enhanced CDD
• Ongoing Monitoring: Transactions must align with risk profile (Section 31)
• Requirements and Compliance Regulations 2011: Risk factors and EDD scenarios

Risk Rating Framework

Six Key Risk Factors

1. Channel - How customer interacts with us
2. Geography - Location and jurisdictional risks
3. Products - Services used by customer
4. Customer - Profile and business structure
5. Transaction - Payment patterns and behavior
6. External Risks - Sanctions, PEPs, adverse media

Channel Risk Assessment

In-Person Contact (Lower Risk)

• Face-to-face identity verification
• Direct document review
• Greater control and oversight

Remote Contact (Higher Risk)

• Challenges in verifying identity
• Enhanced verification methods required
• Biometric checks and certified documents

Channel Risk Assessment (2)

Referrals (Varied Risk)

• Risk depends on referrer reliability
• Regulated sources: lower risk
• Unregulated sources: higher risk
• Independent validation essential

Key Considerations

• Complexity of interaction
• Cross-border involvement
• Record retention requirements

Geographic Risk

Risk Classification

High Risk: Direct ties to high-risk jurisdictions or cross-border transactions with minimal transparency

Medium Risk: Limited connections to higher-risk regions or developing regulatory frameworks

Low Risk: Strong regulatory environments with low corruption indices

Geographic Risk Factors

Key Considerations

• Jurisdictional Risk: FATF high-risk list, sanctioned countries
• Transactional Geography: Cross-border and international transactions
• Customer Nexus: Residential, business location, dual nationality
• Offshore Entities: Tax havens and secrecy jurisdictions
• Geopolitical Factors: Conflict zones, embargoed countries

Product and Service Risks

Foreign Exchange Services

• High volume transactions may indicate layering
• Cross-border transfers to high-risk jurisdictions
• Anonymous cash transactions

Crowdfunding Services

• Anonymity of contributors
• Geographic linkages to high-risk areas
• Political, charity, or development campaigns

Product and Service Risks (2)

Financial Adviser Services

• Complexity of structured investments
• Source of funds/wealth verification
• High-net-worth individuals and PEPs
• Cross-border investments

Shared Risk Factors

• Minimal reporting requirements
• Unexplained customer behavior
• Weaker AML/CFT jurisdiction oversight

Customer Risk Factors

High-Risk Customer Types

• Trusts or personal asset holding vehicles
• Non-residents from insufficient AML/CFT countries
• Nominee shareholders or bearer shares
• Politically Exposed Persons (PEPs)
• Complex ownership structures
• Charities in conflict zones

Customer Risk Factors (2)

High-Risk Industries

• Cash-intensive businesses (bars, restaurants, laundromats)
• Real estate and construction
• Gambling and gaming
• Virtual assets and cryptocurrency
• Import/export operations

Income and Source Assessment

• Disproportionately high income
• Unexplained wealth sources
• Sudden income pattern changes

Customer Behavior Analysis

High-Risk Behaviors

• Reluctance to provide information
• Complex ownership structures
• Use of intermediaries
• Unusual transaction sizes/frequencies
• Cross-border transactions to high-risk jurisdictions
• Large deposits without clear purpose

Transaction Risk Assessment

General Transaction Factors

Type of Transactions

• Cash: Higher risk (anonymity)
• Checks: Lower risk (traceable)
• Wire Transfers: Risk varies by jurisdiction

Volume and Frequency

• Unusually high volumes
• Inconsistent with customer profile

Wire Transfer Risks

Critical Risk Indicators

• Origination/Destination: High-risk jurisdictions, tax havens
• Intermediary Banks: Multiple banks obscure fund origins
• Beneficial Ownership: Lack of transparency
• Purpose: No clear economic justification
• Structuring: Repeated transfers below thresholds
• Rapid Movement: Funds through multiple accounts

External High Risks

Sanctions Risk

• Customer on sanctions lists (OFAC, UN, EU)
• Transactions with sanctioned jurisdictions
• Business sectors vulnerable to sanctions
• Dual-use goods (chemicals, technologies, aerospace)

Mitigation: Regular sanctions screening, EDD for high-risk sectors

External High Risks (2)

Politically Exposed Persons (PEPs)

• Prominent public position holders
• Immediate family and close associates
• Domestic or foreign PEPs
• Unexplained wealth inconsistent with income

Mitigation: Identification, screening, EDD on fund legitimacy

External High Risks (3)

Negative Media Coverage

• Links to illegal activities or corruption
• Multiple credible source mentions
• Connections to known criminals

Complex Legal Structures

• Layers of ownership
• Shell companies
• Lack of beneficial ownership transparency

Risk Rating Model

Three-Tier Classification

High Risk: ECDD Required

• Trusts, non-residents from FATF list countries
• Nominee structures, PEPs
• Complex transactions over NZ$500,000
• High-risk industries (gambling, cryptocurrency)

Risk Rating Model (2)

Medium Risk Level

• Non-face-to-face customers
• Multi-layer ownership structures
• Annual volume NZ$150K-$1M (individuals)
• Annual volume NZ$500K-$2M (entities)
• Third-party payments
• Medium-high jurisdiction transfers
• Cash-intensive businesses

Risk Rating Model (3)

Low Risk Level

• Face-to-face customers
• Visited residential/business address
• NZ/AU residents below NZ$150K annually
• NZ/AU companies below NZ$500K annually
• Retirees below NZ$150K annually
• Students (tuition and living costs)
• Whitelist customers

Ongoing Risk Management

Dynamic Risk Rating

Annual Screening

• Sanctions lists
• PEP status
• Adverse media

Risk Rating Adjustments

• Multiple criteria: highest risk applies
• Risk evolves over time
• Both dealers and compliance can adjust ratings
• All changes systematically recorded

Due Diligence Levels

Risk-Based CDD Requirements

Standard CDD: Default for most customers

Simplified CDD: Low-risk customers (government agencies, publicly listed companies)

Enhanced CDD: Mandatory for high-risk scenarios

• PEPs, nominees, trusts
• High-risk jurisdictions
• Complex structures obscuring ownership

Key Takeaways

Remember These Points

1. Risk-Based Approach is Central

   • Focus on risks and mitigation measures
   • Two pillars: holistic and targeted assessment

2. Six Key Risk Factors

   • Channel, Geography, Products, Customer, Transaction, External Risks

3. Dynamic Risk Management

   • Ongoing monitoring and reassessment
   • Highest risk criteria determines overall rating

Key Takeaways (2)

Critical Actions

4. Enhanced Due Diligence for High Risk

   • PEPs, complex structures, high-risk jurisdictions
   • Transaction volumes over thresholds

5. Documentation and Monitoring

   • Maintain clear audit trails
   • Regular screening (sanctions, PEPs, adverse media)
   • File SARs for unusual or high-risk activity

Contact & Resources

For Further Information

• AML Compliance Team: aml@gmfinance.co.nz
• Emergency Hotline: +64 09-309-8808
• Training Program: Lan’s Enterprise Limited

Questions?

Thank You

Stay Vigilant, Stay Compliant