Residual Risk
Overview
Residual risk is the level of risk that remains after all compliance controls and mitigations have been applied. No system can eliminate risk entirely, so institutions must assess what exposure is acceptable based on risk appetite. Regulators expect banks and fintechs to document residual risks and demonstrate that they align with governance and oversight frameworks. Common examples include residual exposure to false negatives in transaction monitoring or incomplete customer data.Continuous monitoring and risk assessment help reduce residual risk, but management and boards ultimately decide how much to tolerate. Understanding residual risk ensures institutions remain transparent and accountable in compliance management.
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