How LP Risk Scores are calculated in Carta's KYC service
This article provides an overview of the LP (Investors) risk scoring feature within Carta's KYC solution including what it is, how it’s derived, and how you can leverage the score for your own Anti-Money Laundering (AML) program.
What is a Risk Score?
A risk score is a numerical or categorical value assigned to an LP based on various factors that contribute to their overall risk profile from an AML perspective. This score helps you quickly assess AML and Sanctions risk associated with an LP and make informed decisions regarding their onboarding and ongoing monitoring requirements.
How do we derive LP Risk Scores?
Carta's KYC as a Service solution utilizes automated risk score calculators, second-level internal compliance review, and robust Quality Assurance (QA) review to determine an LP's risk profile. These calculators consider a variety of data points collected during the KYC evaluation process, including:
Geographic Factors: The LP's country of residence, country of legal address, and countries of operation. High-risk jurisdictions will impact the score.
Entity Complexity: For institutions, factors like complex legal structures are considered.
Politically Exposed Person (PEP) Status: Whether the LP is a Politically Exposed Person.
Adverse Media Status: The presence of any negative news or adverse media related to the LP.
High-Risk Industry: Whether the LP operates in an industry deemed high-risk for money laundering.
Sanctions Exposure: Sanctions risk is assessed through screening against global watchlists to identify US OFAC blocked entities and jurisdictional exposure to comprehensively sanctioned countries
The risk score calculations are tailored to the LP's client type (e.g. individual, company, trust, publicly traded entity) and the fund's jurisdiction. For example, specific calculators are used for US, Lux, UK/Jersey, SG/Cayman/BVI jurisdictions.
Here is a general example of how risk areas are scored:
Client Type | Risk Area | Example Input | Example Score |
INDIVIDUAL | Country of Residence | GB | Low |
High risk US jurisdiction | Yes | High | |
PEP Status | No | Low | |
Adverse Media Status | Yes | High | |
Industry | Apparel | Low | |
Overall score | Medium | ||
COMPANY | Country of Legal Entity | AU | Low |
High risk US jurisdiction | No | Low | |
PEP Status | No | Low | |
Adverse Media Status | Yes | Low | |
Industry | Gambling | High | |
Complex Legal Entity | Yes | High | |
Overall score | Low |
Utilizing LP Risk Scores for Your AML Program
The LP risk scores provided by Carta's KYC as a service can support your already existing robust AML program by:
Informing Onboarding Decisions: Quickly identify high-risk LPs that may require additional due diligence or a different onboarding approach.
Automating Periodic Reviews: Risk scores automatically set the frequency of periodic reviews, ensuring ongoing compliance.
Customizing Risk Scores
We understand that each AML program has unique requirements. If you have specific needs for customizing risk score calculations or the associated risk levels, please reach out to support at investorservices@carta.com or your FA team.