Transaction Risk Monitoring evaluates the risks of trades and cashflows using KYC, transaction size, and trading frequency.
Transaction risk monitoring is a compliance feature in Kooltra that enables users to assess the risks associated with trades and cashflows.
Calculating Risk Scores
Risk scores are calculated within Kooltra using a methodology that considers three key factors:
- Know-Your-Customer (KYC) Risk
- Transaction Size Risk
- Trading Frequency Risk
The total risk score of the account is calculated by applying specific percentage weights to each of these factors and multiplying them together. This calculation results in a risk score between 0—100. By default, the risk scores are then categorized into the following:
- High: Risk Score of 85—100
- Medium: Risk Score of 70—84
- Low: Risk Score of 0—69
The lower threshold for both the medium and high risk categories can be adjusted depending on your business risk tolerance. These thresholds can be adjusted by modifying the values in the Warning and Alert input fields, respectively.
Know-Your-Customer (KYC) Risk
Kooltra calculates KYC risk based on details from the account, contact, and beneficiary, with specific factors as follows:
- Account: Affected by country and industry risks.
- Contact: Affected by country risk and the associated account’s industry risk.
- Beneficiary: Affected by industry risk and the higher of beneficiary country risk or beneficiary bank country risk.
Country and industry risks are manually configured at the entity level on the Compliance Risk page.
Transaction Size Risk
The transaction risk is dependent on the size of the transaction. This size is compared to maximum allowable transaction size, minimum allowable transaction size and average transaction size over the past 6 months.
Trading Frequency Risk
The transaction frequency risk is dependent on the number of transactions completed with a particular counterparty in the past week, as well as the average number of transactions over the last 6 months.
Transactions are flagged if:
- The risk score is greater than the high (Alert) threshold set in the app under Entity Settings.
- The currency of the transaction is not listed among the currencies on the account.
- The transaction size is smaller or larger than the minimum or maximum allowable transaction size.
- The number of transactions with this client differs from the weekly average number of transactions booked (calculated over the past 6 months).
For further information regarding transaction risk configurations or the calculation logic, please reach out to Kooltra support for assistance.