What constitutes a "high risk" customer in banking compliance?

A "high risk" customer in banking compliance is defined primarily by their potential to engage in illicit activities, such as money laundering or terrorist financing. This classification is based on behaviors or characteristics that increase the likelihood of these customers being involved in activities that could violate anti-money laundering (AML) regulations or other compliance mandates.

Customers identified as high risk may exhibit patterns that are inconsistent with typical banking activity, such as large cash transactions, inconsistent account activity, or the use of complex financial structures that hide the true nature of their transactions. These factors are monitored to ensure that financial institutions can take appropriate measures to mitigate risks and comply with legal expectations.

While behaviors such as regularly withdrawing large sums of money, having multiple accounts, or submitting loan applications with insufficient documentation may raise flags or warrant further scrutiny, they do not inherently indicate an increased risk of criminal activity like money laundering or terrorist financing does. Thus, recognizing the nuances of what constitutes "high risk" helps banks focus their compliance efforts where they are most necessary.