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.
Stay ahead of risk with Signzy
Explore tools that help you onboard, monitor, and verify with confidence
AML Screening
Screen users against Politically Exposed Persons (PEP), watchlists, sanctions lists, adverse media, and more through one-time screening and advanced monitoring.
Transaction Monitoring
Monitor transactions in real-time and analyse past behaviour to identify suspicious activities and ensure regulatory compliance across the user journey.
Database Verification
Instantly verify user information by connecting to trusted databases across jurisdictions for accurate, compliant, and faster onboarding.
FAQ
What is residual risk?
The leftover exposure after all compliance controls are applied.
Why is it important?
It shows regulators how institutions balance control limits and risk appetite.
How is it assessed?
Through risk assessments, KRI monitoring, and governance oversight.
Who approves it?
Senior management and boards based on regulatory expectations.