When should a financial institution conduct a customer risk assessment?

A customer risk assessment is a critical component of a financial institution’s compliance program, particularly in relation to the Bank Secrecy Act (BSA) and anti-money laundering (AML) regulations. Conducting a risk assessment when opening new accounts helps identify potential risks associated with the customer, their activities, and the type of services they will use. This initial assessment is crucial in determining the necessary baseline level of monitoring and controls required for that customer relationship.

Furthermore, conducting periodic assessments after the initial evaluation ensures that the institution continuously evaluates any changes in the customer's risk profile over time. This might include changes in the customer's business activities, transaction patterns, or exposure to certain risks, which can be critical for ongoing compliance efforts. By regularly updating the risk assessment, the institution can adapt its monitoring and compliance strategies to effectively mitigate potential risks.

In contrast, conducting a risk assessment only upon the investment of a large amount or only when issuing credit cards would restrict the institution’s ability to comprehensively understand its customer base. Setting a specific time frame, such as the end of the fiscal year, would also inhibit timely adjustments to risks as customers change and evolve throughout the year. Continuous risk assessment is vital for robust BSA and AML compliance.