What does "transaction risk" refer to in the context of BSA?

In the context of the Bank Secrecy Act (BSA), "transaction risk" specifically refers to the risk associated with the specific transactions a customer conducts. This includes evaluating the nature and frequency of the transactions to determine whether they may be indicative of money laundering or other illicit activities.

Understanding transaction risk is essential for compliance with the BSA, as it enables financial institutions to identify unusual patterns that could signal potential illegal activities. Monitoring customer transactions helps institutions detect and report suspicious activities, ensuring that they adhere to legal requirements for reporting and recordkeeping.

Transaction risk may encompass various factors, such as the size of transactions, the type of activity being conducted, the geographic locations involved, and the customer’s historical transaction patterns, which together contribute to a broader risk assessment. Being able to pinpoint these risks is crucial for effective compliance and safeguarding against financial crimes.